Abstract
We investigate the impacts of the short-termism on multiple equilibria in a dynamic rational expectations equilibrium model. We find that short-termism is not the cause of equilibrium multiplicity but affects market quality of all equilibria. The liquidity, price efficiency and expected trading volume in high trading intensity equilibrium (HTIE) are higher than those in low trading intensity equilibrium (LTIE) no matter how myopic the informed traders are. As investors’ myopia degree increases, this difference between HTIE and LTIE becomes larger. The LTIE is always stable but the speed of convergence to new equilibrium is negatively related to the myopia degree of traders when an unexpected shock moves the price away from equilibrium. The opposite happens in HTIE.
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.
