Posts

Es werden Posts vom November, 2013 angezeigt.

One Market - Two Perspectives

Dear reader,

this article introduces two perspectives on markets. The first is a classic economical view on a market - the Capital Asset Pricing Model. The second is from a view point of a gambler - the Parimutuel betting. Both models are based on the idea of transactions - the price of an asset (or bet) is defined by the price of the last transaction of that bet.

Caprital Asset Pricing Model
The fundamental assumption of Capital Asset Pricing Model (CAPM: http://en.wikipedia.org/wiki/Capital_Asset_Pricing_Model) is that all Investors are (1) rational, (2) risk-averse and (3) cannot influence market prices. The result is, that market prices move in unpredictable manner and equals a gauss distribution. This chaotic price movement is only influenced by (4) new information hitting the market, which should be unpredictable.

I want to argue against CAPM. Therefore I have to disproof at least one of the assumptions above.

(1) Rational investors: Behavioural finance suggests that humans are…