Klaus Adam, Johannes Beutel, Albert Marcet, Sebastian Merkel
AbstractWe present a stock market model that quantitatively replicates the joint behavior of stock prices, trading volume and investor expectations. Stock prices in the model occasionally display belief-driven boom and bust cycles that delink asset prices from fundamentals and redistribute considerable amounts of wealth from less to more experienced investors. Although gains from trade arise only from subjective belief di¤erences, introducing …nancial transactions taxes (FTTs) remains undesirable. While FTTs …
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