Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding

By Markus K. Brunnermeier | Go to book overview

3 Classification of Market Microstructure Models

The results presented in the last chapter were derived in a very general setting without specifying particular utility functions or return distributions. One needs to describe the economy in more detail in order to go beyond these general results. The loss of generality is compensated for by the finding of closed-form solutions, comparative static results, and a more detailed analysis of the economic linkages. Models in the current chapter take a closer look at the market microstructure and its role in the revelation of information. This chapter is devoted to classifying static models where each trader trades only once and thus does not have to worry about the impact of his trading on the future price path. Dynamic models are discussed in Chapter 4 .


Classification Dimensions

Market microstructure models can be classified along at least four dimensions: type of orders, sequence of moves, price setting rule, and competitive versus strategic structure. These alternative classification schemes are described below.

Traders submit different types of orders depending on the market structure. The three basic types of orders are market orders, limit orders, and stop (loss) orders. A trader who submits a market order can be sure that his order will be executed, but bears the risk that the execution price might fluctuate a lot. Limit orders allow one to reduce this risk since a buy (sell) order is only executed if the transaction price is below (above) a certain limit. Stop orders set the opposite limits. They trigger a sell (buy) transaction if the price drops below (rises above) a prespecified level. However, the trader faces an execution risk with limit and stop orders since these orders will not be filled if the equilibrium price does not reach the specified limit. The trader can form a whole demand schedule by combining many limit and stop orders. Demand schedules specify the number of stocks that a trader wants to buy or sell for each possible equilibrium price. Therefore, the trader can avoid

-60-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen
/ 244

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.