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Participation of boundedly rational agents in financial markets - effects on speculation, trading volume and price volatility

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Empirical work has provided evidence that many economic agents who have to make decisions under pressure are not fully rational. My research deals with financial markets in which there are agents who are boundedly rational. First, I will study markets in which there are both fully rational and boundedly rational agents and focus on implications of boundedly rational agents' behavior on rational speculators' trading strategies and so on trading volume and price volatility. Secondly, I want to test if, when trading, professional speculators use alternative decision making theories and more particularly Prospect Theory. Part of this theory says that agents make decisions with respect to a reference point, are risk averse in gains and risk lovers in losses with respect to their reference point. I want to study option markets since the risks undertaken can be easily measured. Comparisons between countries and underlying assets (stock and futures) are also planned.

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RGI - Research grants (individual fellowships)

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TILBURG UNIVERSITY
EU-Beitrag
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Adresse
Warandelaan 2
5037 AB TILBURG
Niederlande
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Beteiligte (1)