Date:October 22th,Thurs. 17:15-18:45
Venue: Meeting Room (Room #3403) on the 4th floor of Mercury Tower
Speaker:Jie Qin (Ritsumeikan University)
Title:Regret, Informational Efficiency, and Asset Pricing
(Abstract)
This paper develops a noisy rational expectations equilibrium (REE) model with regret-averse traders. Regret-averse traders evaluate equity investments relative to counterfactual investments in alternative markets. In addition to the standard informational asymmetry between informed and uninformed rational traders, regret-averse traders have private information about counterfactual investments, generating a second layer of informational asymmetry. We establish the existence of a linear equilibrium and derive closed-form pricing formulas. Regret aversion reduces market efficiency, as measured by price informativeness. Counterfactual thinking also provides a behavioral channel of cross-market interaction through which alternative markets affect equity’s expected return and price informativeness.
Keywords: regret, noisy-REE, alternative assets, asymmetric information, asset pricing, market efficiency, spillover
JEL Classification: G12, G14, G41
