The Evolution of Security Designs  

Oleh:

Noe, Thomas H. ; Rebello, Michael J. ; Jun, Wang

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 61 no. 5 (Okt. 2006), page 2103-2136.
Topik: EVOLUTION; studies; valuation; cash flow; securities trading; rational expectations; algorithms; simulation; learning
Fulltext: p 2103.pdf (234.28KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

We consider a competitive and perfect financial market in which agents have heterogenous cash flow valuations. Instead of assuming that agents are endowed with rational expectations, we model their behaviour as the product of adaptive learning. Our results demonstrate that adaptive learing affects security design profoundly, with securities mispriced even in the long run and optimal designs trading off underpricing against intrinsic value maximization. The evolutionary dominant security design calls for issuing securities that engender large losses with a small but positive probability, but that otherwise produce stable payoffs, almost the exact opposite of the pure state claims that are optimal in the rational expectations framework.

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