Francesca Mariani, Maria Cristina Recchioni, Tai-Ho Wang, Roberto Giacalone
{"title":"Can market volumes reveal traders' rationality and a new risk premium?","authors":"Francesca Mariani, Maria Cristina Recchioni, Tai-Ho Wang, Roberto Giacalone","doi":"arxiv-2406.05854","DOIUrl":null,"url":null,"abstract":"An empirical analysis, suggested by optimal Merton dynamics, reveals some\nunexpected features of asset volumes. These features are connected to traders'\nbelief and risk aversion. This paper proposes a trading strategy model in the\noptimal Merton framework that is representative of the collective behavior of\nheterogeneous rational traders. This model allows for the estimation of the\naverage risk aversion of traders acting on a specific risky asset, while\nrevealing the existence of a price of risk closely related to market price of\nrisk and volume rate. The empirical analysis, conducted on real data, confirms\nthe validity of the proposed model.","PeriodicalId":501478,"journal":{"name":"arXiv - QuantFin - Trading and Market Microstructure","volume":"7 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - QuantFin - Trading and Market Microstructure","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2406.05854","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
An empirical analysis, suggested by optimal Merton dynamics, reveals some
unexpected features of asset volumes. These features are connected to traders'
belief and risk aversion. This paper proposes a trading strategy model in the
optimal Merton framework that is representative of the collective behavior of
heterogeneous rational traders. This model allows for the estimation of the
average risk aversion of traders acting on a specific risky asset, while
revealing the existence of a price of risk closely related to market price of
risk and volume rate. The empirical analysis, conducted on real data, confirms
the validity of the proposed model.
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