EconStor >
Christian-Albrechts-Universität Kiel (CAU) >
Department of Economics, Universität Kiel  >
Economics Working Papers, Department of Economics, CAU Kiel >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/22057
  
Title:On the Interpretation of Price Adjustments and Demand in Asset Pricing Models with Mean-Variance Optimization PDF Logo
Authors:Franke, Reiner
Issue Date:2008
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2008,13
Abstract:With reference to the class of asset pricing models with a market maker and mean-variance optimization of speculative agents, the note seeks to clarify the concepts behind the price adjustment rule, which are often treated somewhat carelessly in this literature. Calling attention to the distinction between the agents? desired holding of the risky asset and the desired change in their position, the following conclusion is drawn. If market prices are said to adjust in the direction of excess demand, then the story of the maximization of expected wealth should be dropped. On the other hand, the story could be perfectly maintained if the market maker were assumed to adjust prices inversely to his accumulated inventory.
Subjects:Expected wealth maximization
market maker
positions of speculative agents
JEL:G12
D84
C15
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

Files in This Item:
File Description SizeFormat
EWP-2008-13.pdf427.46 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/22057

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.