The Behavior of Financial Markets under Rational Expectations

1 Information
1.1 Rational expectations
1.2 Different opinions
1.3 Information Aggregation and learning
1.4 How do Agents Learn New Information
1.5 Information and pricing
1.6 Further issues of learning and reacting
1.7 Information providers
2 How are Prices Formed?
2.1 The Perspective of Asset Pricing Literature
2.2 Inventory Costs Based Microstructure Models
2.3 Information Based Microstructure Models
2.4 What is Risk?
2.5 Trading mechanism .
2.6 Short selling
2.7 Other Topics in Microstructure
3 Liquidity 17
3.1 Measuring Liquidity
3.2 Volume .
3.3 Determinants of Liquidity
3.4 Market’s and Liquidity Providers’ Conditions and Liquidity
3.5 The Effect of Liquidity on the Firm’s Well Beings
3.6 Who is Providing Liquidity
4 Limit Orders
4.1 The Models of Limit Orders
4.2 Investor’s Choice of Limit versus Market Orders
4.3 Limit Order Revisions and Aggressiveness
4.4 Limit Order Patterns .
5 Depicting investors
5.1 Theory Based Investor Taxonomy
5.2 Identity Based Investor Taxonomy
5.3 Investor sophistication
5.4 Herding and correlated trading .
5.5 Trading behavior
6 Mutual Funds
6.1 Fund Performance and Fund Manager Skills
6.2 Funds herding .
6.3 Incentives and the risk shifting
6.4 Fund Flow and Investor’s Preferences
6.5 Fund Fees
6.6 Governance of Funds
7 Prices of IPO and SEO 46
7.1 Why and When to Issue New Equities
7.2 Choice of Issue Types .
7.3 New Issuance Pricing . .
7.4 Trading around IPO and SEO
7.5 Market Reaction and Long Term Performance
8 Behavioral Explanation 51
8.1 General discussion on the behavioral explanation .
8.2 Disposition effect and prospect theory
8.3 Overconfidence and Over-reaction
8.4 Awareness, familiarity, and Attention .
8.5 Law of small numbers
8.6 Rational structural uncertainty models
9 Modeling economic behavior
9.1 Nash Equilibrium
9.2 Bayesian Games
9.3 Utility maximization models
10 Mathematical Techniques for Economic Modeling 64
10.1 Difference Equations
10.2 Differential Equations
10.3 Fixed Point
10.4 Static Optimization
10.5 Duality
11 Empirical Methodology
11.1 Regressions
11.2 Non-Regression Methods
11.3 Endogeneity
11.4 Measurements
Bibliography