The Review of Asset Pricing Studies Vol. 4 No. 1 2014
Predators and Prey on Wall Street
open access
Abstract
Much financial activity is zero-sum. While providing transactional and diversification services to others, participants also prey upon each other. High-ability predators trade opportunistically with less-able prey. In our dynamic model these features amplify real shocks. The presence of more low-ability traders reduces expected losses to high-ability traders, leading to equilibria with high levels of financial activity and employment. Shocks to profits can motivate exit by low-ability traders, rendering those of intermediate skill more vulnerable. Thus, our relatively simple model generates boom-bust dynamics suggestive of Wall Street.
- DOI
- 10.1093/rapstu/rau003
- Volume
- 4
- Issue
- 1
- Pages
- 1-38
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib