Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g  of expected returns). This is because such a model would have to include knowledge about the market participants' propensity to change their opinions on the validity of that model. This leads to a  circular situation characteristic of  markets, where participants collectively create the target variables they wish to estimate. In this paper, we introduce a framework for generating expectation models and study the conditions under which they are adopted by a majority of market participants.
Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g . of expected returns). This is because such a model would have to include parameters governing the market participants' propensity to change their opinions on the validity of that model. This leads to a well--known circular situation characteristic of financial markets, where participants collectively create the future they wish to estimate. In this paper, we introduce a framework URLanizing multiple expectation models and study the conditions under which they are adopted by a majority of market participants.
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.
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knowledge about
parameters governing
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well--known
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financial
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target variables
future
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for generating
URLanizing multiple