Can market volumes reveal traders' rationality and a new risk premium?
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2024
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| _version_ | 1866911718883459072 |
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| author | Mariani, Francesca Recchioni, Maria Cristina Wang, Tai-Ho Giacalone, Roberto |
| author_facet | Mariani, Francesca Recchioni, Maria Cristina Wang, Tai-Ho Giacalone, Roberto |
| contents | An empirical analysis, suggested by optimal Merton dynamics, reveals some unexpected features of asset volumes. These features are connected to traders' belief and risk aversion. This paper proposes a trading strategy model in the optimal Merton framework that is representative of the collective behavior of heterogeneous rational traders. This model allows for the estimation of the average risk aversion of traders acting on a specific risky asset, while revealing the existence of a price of risk closely related to market price of risk and volume rate. The empirical analysis, conducted on real data, confirms the validity of the proposed model. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2406_05854 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Can market volumes reveal traders' rationality and a new risk premium? Mariani, Francesca Recchioni, Maria Cristina Wang, Tai-Ho Giacalone, Roberto Trading and Market Microstructure An empirical analysis, suggested by optimal Merton dynamics, reveals some unexpected features of asset volumes. These features are connected to traders' belief and risk aversion. This paper proposes a trading strategy model in the optimal Merton framework that is representative of the collective behavior of heterogeneous rational traders. This model allows for the estimation of the average risk aversion of traders acting on a specific risky asset, while revealing the existence of a price of risk closely related to market price of risk and volume rate. The empirical analysis, conducted on real data, confirms the validity of the proposed model. |
| title | Can market volumes reveal traders' rationality and a new risk premium? |
| topic | Trading and Market Microstructure |
| url | https://arxiv.org/abs/2406.05854 |