Modeling of stock returns in continuous vis-a-vis discrete time is equivalent, respectively to the conditioning of stock returns on a random walk process for trade imbalances vis-a-vis a random walk process for evolution of information

Annals of Financial Economics 17, 2250010

44 Pages Posted: 16 Jun 2021 Last revised: 24 Jun 2022

See all articles by Oghenovo A. Obrimah

Oghenovo A. Obrimah

FISK University

Wing-Keung Wong

Asia University, Department of Finance

Date Written: March 10, 2022

Abstract

Let p, p(I), ϱ, and p(M) denote, respectively the current stock price, the future stock price that is conditioned on information, the minimum stock market tick size, and the realized future stock price. Formal theoretical proofs in this study show modeling of stock returns in continuous time induces stock returns that have parameterization as gambles over lotteries. Stock returns have parameterization as gambles, because in presence of fairness of formation of, p<[p+ϱ]

Keywords: Connectedness, Rational Expectations, General Equilibrium, Mechanism Design, Stock Prices, Lotteries

JEL Classification: G17, D53, C02

Suggested Citation

Obrimah, Oghenovo A. and Wong, Wing-Keung, Modeling of stock returns in continuous vis-a-vis discrete time is equivalent, respectively to the conditioning of stock returns on a random walk process for trade imbalances vis-a-vis a random walk process for evolution of information (March 10, 2022). Annals of Financial Economics 17, 2250010, Available at SSRN: https://ssrn.com/abstract=3861264 or http://dx.doi.org/10.2139/ssrn.3861264

Oghenovo A. Obrimah (Contact Author)

FISK University ( email )

1000 17th Ave N
Nashville, TN TN 37208-3051
United States
4049404990 (Phone)

Wing-Keung Wong

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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