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Heterogeneous Expectations (heterogeneous + expectation)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Uncertain Demand, Heterogeneous Expectations, and Unintentional IPO Underpricing

FINANCIAL REVIEW, Issue 1 2006
Bruce K. Gouldey
G12; G24; G30 Abstract Distinguishing between intentional and unintentional incentives to underprice initial public offerings (IPOs), I develop sufficient conditions for the winners' curse postulated by Miller (1977) and implications for intertemporal changes in the magnitude of underpricing. Specifically, I show that unintentional underpricing (and occasional overpricing) of IPOs is a consequence of investors' heterogeneous expectations of the uncertain value of a stock when the supply is constrained and the underwriter's price discovery process only partially identifies aggregate demand. Moreover, an IPO that is oversubscribed in the premarket sale almost certainly will experience a short-term price increase in the secondary market. [source]

Heterogeneous expectations of traders in speculative futures markets

THE JOURNAL OF FUTURES MARKETS, Issue 5 2001
Darren L. Frechette Assistant Professor
The representative agent hypothesis is disputable on theoretical grounds because it is inconsistent with observed trading behavior and the existence of speculative markets. In such markets, the representative agent hypothesis implies agents hold homogeneous expectations. If this were true, speculative markets would fail as only one side of the market would be represented, either demand or supply. Nonetheless, the homogeneity assumption has been maintained in the past to ensure tractability because of the difficulty of explicit aggregation across heterogeneous expectations. In this article, we present and apply an approach for analyzing heterogeneity in specific market settings. To do so, our approach specifies an underlying distribution of expectations that is consistent with heterogeneity across expectations. To demonstrate the utility of the approach, we present results from its application to a time series of commodity futures prices. Results are consistent with the conclusion that significant heterogeneity in expectations exists in speculative futures markets. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:429,446, 2001 [source]

Uncertain Demand, Heterogeneous Expectations, and Unintentional IPO Underpricing

FINANCIAL REVIEW, Issue 1 2006
Bruce K. Gouldey
G12; G24; G30 Abstract Distinguishing between intentional and unintentional incentives to underprice initial public offerings (IPOs), I develop sufficient conditions for the winners' curse postulated by Miller (1977) and implications for intertemporal changes in the magnitude of underpricing. Specifically, I show that unintentional underpricing (and occasional overpricing) of IPOs is a consequence of investors' heterogeneous expectations of the uncertain value of a stock when the supply is constrained and the underwriter's price discovery process only partially identifies aggregate demand. Moreover, an IPO that is oversubscribed in the premarket sale almost certainly will experience a short-term price increase in the secondary market. [source]

Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say

JOURNAL OF ECONOMIC SURVEYS, Issue 1 2000
Ronald MacDonald
This paper attempts to provide a logical overview of the literature which exploits survey data to examine issues of expectations formation and risk aversion in financial markets. Our survey suggests that: short term expectations are excessively volatile and exhibit bandwagon effects, while longer term expectations appear to be regressive and therefore stabilising; in bond and foreign exchange markets the standard result of forward rate biasedness is due in part to time-varying premia; recent research using disaggregate foreign exchange survey data demonstrates the importance of heterogeneous expectations. [source]

Monetary Policy with Heterogeneous and Misspecified Expectations

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 1 2009
MICHELE BERARDI
adaptive learning; expectations formation; heterogenous expectations; misspecifications; monetary policy In the recent literature on monetary policy and learning, it has been suggested that private sector's expectations should play a role in the policy rule implemented by the central bank, as they could improve the ability of the policymaker to stabilize the economy. Private sector's expectations, in these studies, are often taken to be homogeneous and rational, at least in the limit of a learning process. In this paper, instead, we consider the case in which private agents are heterogeneous in their expectations formation mechanisms and hold heterogeneous expectations in equilibrium. We investigate the impact of this heterogeneity in expectations on central bank's policy implementation and on the ensuing economic outcomes, and the general result that emerges is that the central bank should disregard inaccurate private sector expectations and solely base its policy on the accurate ones. [source]

Heterogeneous expectations of traders in speculative futures markets

THE JOURNAL OF FUTURES MARKETS, Issue 5 2001
Darren L. Frechette Assistant Professor
The representative agent hypothesis is disputable on theoretical grounds because it is inconsistent with observed trading behavior and the existence of speculative markets. In such markets, the representative agent hypothesis implies agents hold homogeneous expectations. If this were true, speculative markets would fail as only one side of the market would be represented, either demand or supply. Nonetheless, the homogeneity assumption has been maintained in the past to ensure tractability because of the difficulty of explicit aggregation across heterogeneous expectations. In this article, we present and apply an approach for analyzing heterogeneity in specific market settings. To do so, our approach specifies an underlying distribution of expectations that is consistent with heterogeneity across expectations. To demonstrate the utility of the approach, we present results from its application to a time series of commodity futures prices. Results are consistent with the conclusion that significant heterogeneity in expectations exists in speculative futures markets. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:429,446, 2001 [source]