DP7127 Learning in Financial Markets

Author(s): Lubos Pástor, Pietro Veronesi
Publication Date: January 2009
Keyword(s): Bayesian, bubble, predictability, uncertainty, volatility
JEL(s): g0
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7127

We survey the recent literature on learning in financial markets. Our main theme is that many financial market phenomena that appear puzzling at first sight are easier to understand once we recognize that parameters in financial models are uncertain and subject to learning. We discuss phenomena related to the volatility and predictability of asset returns, stock price bubbles, portfolio choice, mutual fund flows, trading volume, and firm profitability, among others.