A Peer-based Model of Fat-tailed Outcomes
Trading and Market Microstructure
2013-04-03 v1 Other Statistics
Abstract
It is well known that the distribution of returns from various financial instruments are leptokurtic, meaning that the distributions have "fatter tails" than a Normal distribution, and have skew toward zero. This paper presents a graceful micro-level explanation for such fat-tailed outcomes, using agents whose private valuations have Normally-distributed errors, but whose utility function includes a term for the percentage of others who also buy.
Keywords
Cite
@article{arxiv.1304.0718,
title = {A Peer-based Model of Fat-tailed Outcomes},
author = {Ben Klemens},
journal= {arXiv preprint arXiv:1304.0718},
year = {2013}
}