This paper develops a microstructure model which describes the way in which private information is incorporated into financial market prices via a Bayesian learning process used by agents. The paper shows how a latent process which represents information arrival can be inferred from observed...

Many practitioners point out that the speculative profits of institutional traders are eroded by the difficulty in gauging the price impact of their trades. In this paper, we develop a model of strategic trading where speculators face such a dilemma because of incomplete information about...

We consider an experimental setting where traders in stock markets or exchange rate markets receive one stylized piece of information at a time about the value of an asset. We find that having limited knowledge about the prior distribution of true asset values does not hamper the decision making...

I analyze a model in which different agents have different non-rational expectations about the future price and cash flows of a risky asset. The beliefs in the society evolve according to a very general class of evolution functions that are monotone; that is if one type has increased its share in...

Agents with heterogeneous beliefs about fundamental growth do not perfectly share risks but instead speculate with each other on the relative accuracy of their models' predictions. They face the risk that market prices move more in line with the trading models of competing agents rather than...

In a market with informationally connected traders, the dynamics of volume, price informativeness, price-volatility, and price-impacts are severely affected by the number of information linkages every trader experiences with his neighbors. We show that in the presence of information linkages...

Investors who possess the same information and interpret it differently are said to have divergent (as distinct from) homogeneous expectations. Financial economists have widely frowned on the divergent expectations assumption. Nevertheless, this assumption describes reality and is critically...