Abstract
This paper develops a dynamic model of asset price behavior based upon the arrival and diffusion of rumors in a securities market. The model is based upon a time-homogeneous pure birth process in which the number of informed and uninformed traders varies probabilistically over time as learning occurs. Traders become informed by observing the original source of information or through communication with an individual who has ‘heard’ the information already, both of which are probabilistic events. Price changes result from trades that occur when an individual hears and acts on the information. Rumors can contain true or false information. False rumors ultimately are corrected. Results from simulating the model yield log price changes similar to actual intraday common stock returns.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
