Dear all,
On Tuesday 26, at 2pm in room 106 - Luiss viale Romania 32, Roma,
prof Nutz will give the following seminar:
Supply and Shorting in Speculative MarketsAbstract:We propose a continuous-time model of trading among risk-neutralagents with heterogeneous beliefs. Agents face quadraticcosts-of-carry on their positions and as a consequence, their marginalvaluation of the asset decreases when the magnitude of their positionincreases, as it would be the case for risk-averse agents. In theequilibrium models of investors with heterogeneous beliefs thatfollowed the original work by Harrison and Kreps, investors arerisk-neutral, short-selling is prohibited and agents face a constantmarginal cost of carrying positions. The resulting resale optionguarantees that the equilibrium price exceeds the price of the assetin a static buy-and-hold model where speculation is ruled out. Ourmodel features three main novelties. First, increasing marginal costsentail that the price depends on the exogenous supply. Second, inaddition to the resale option, agents may also value an option todelay, and this may cause the market to equilibrate below the staticbuy-and-hold price. Third, we introduce the possibility ofshort-selling; then the resale option for agents with short positionspartly compensates the resale option for long agents. (Joint work withJose Scheinkman)
Best, Sara
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