TITLE:
Investor Naïveté and Asset Prices
AUTHORS:
Jonathan Cook
KEYWORDS:
Level-k- Model; Nonequilibrium Strategic Thinking; Technical Analysis
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.3 No.4,
November
4,
2013
ABSTRACT:
This paper describes strategic behavior in a nonequilibrium model of asset pricing with heterogeneous sophistication. Both risk and return are increasing in the na?veté of investors in the market. Optimal investment involves in considering the effect that na?e investors have on the market. Further, we derive a simple characterization of the asset price dynamics that results from an arbitrary combination of a countably infinite set of investor types.