Market Selection

54 Pages Posted: 25 Mar 2008 Last revised: 16 Nov 2016

See all articles by Leonid Kogan

Leonid Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Stephen A. Ross

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Yale University - International Center for Finance

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Mark M. Westerfield

University of Washington

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2011

Abstract

The hypothesis that financial markets punish traders who make relatively inaccurate forecasts and eventually eliminate the effect of their beliefs on prices is of fundamental importance to the standard modeling paradigm in asset pricing. We establish straightforward necessary and sufficient conditions for agents to survive and to affect prices in the long run in a general setting with minimal restrictions on endowments, beliefs, or utility functions. We describe a new mechanism for the distinction between survival and price impact in a broad class of economies. Our results cover economies with time-separable utility functions, including possibly state-dependent preferences.

Keywords: Financial Markets, Heterogeneous Beliefs, Price Impact, Survival, General Equilibrium

JEL Classification: D51, D84, G14, G17

Suggested Citation

Kogan, Leonid and Ross, Stephen A. and Wang, Jiang and Westerfield, Mark M., Market Selection (August 1, 2011). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1108682 or http://dx.doi.org/10.2139/ssrn.1108682

Leonid Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-636
Cambridge, MA 02142
United States
617-253-2289 (Phone)
617-258-6855 (Fax)

HOME PAGE: http://web.mit.edu/lkogan2/www/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen A. Ross

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States
203-432-6015 (Phone)
203-432-8931 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-614
100 Main Street
Cambridge, MA 02142
United States
617-253-2632 (Phone)
617-258-6855 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mark M. Westerfield (Contact Author)

University of Washington ( email )

Box 353200
Seattle, WA 98195
United States

HOME PAGE: http://www.markwesterfield.com

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