The Impact of Endogenously Determined Uncertainty About Future Mispricings and Investigatory Outcomes

32 Pages Posted: 20 Aug 2013

See all articles by Liang Fu

Liang Fu

Oakland University

Austin Murphy

Oakland University - School of Business Administration

Date Written: August 19, 2013

Abstract

This paper models market mispricings as a function of subjective predictions about the endogenously determined future trades of other investors. Utilizing only a very general set of very unrestrictive assumptions, a single boundary condition with only a few variables is deduced that facilitates rational analysis of the multitude of ambiguous factors and complex interrelationships that influence investment decisions. The model, which incorporates the uncertainty of the outcome of an investment analysis that is shown to explain the neglected firm effect, supplies new insights on market price cycles and patterns.

Keywords: arbitrage, market efficiency, uncertainty, investment analysis, cycles

JEL Classification: G12

Suggested Citation

Fu, Liang and Murphy, J. Austin, The Impact of Endogenously Determined Uncertainty About Future Mispricings and Investigatory Outcomes (August 19, 2013). Available at SSRN: https://ssrn.com/abstract=2312634 or http://dx.doi.org/10.2139/ssrn.2312634

Liang Fu

Oakland University ( email )

Rochester, MI 48309-4401
United States

J. Austin Murphy (Contact Author)

Oakland University - School of Business Administration ( email )

Varner Hall - Room 502
Rochester, MI 48309-4401
United States
248-370-2125 (Phone)
248-370-4275 (Fax)

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