arXiv subjects

Thibaut Ajdler

Publications and source records attributed to Thibaut Ajdler.

2 recordsLinked to original sources

arXiv2019

Model uncertainty in financial forecasting

Models necessarily capture only parts of a reality. Prediction models aim at capturing a future reality. In this paper we address the question of how the future is constructed (or: imagined) in an investment context where market participants form expectations on the returns of a risky investment. We observe that the participants' model choices are subject to unforeseeable change. The objective of the paper is to demonstrate that the resulting uncertainty may be reduced by incorporating relations among competing models in the estimation process.

q-fin.GN↗

arXiv2019

Learning from Others in the Financial Market

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 for organizing multiple expectation models and study the conditions under which they are adopted by a majority of market participants.

q-fin.GN↗