Social and Behavioral Sciences Commons^™

Persistent Asset Mispricing: Variations On A Simultaneous Move Game, Arjun Kavi Brara

Senior Projects Spring 2016

The purpose of this paper will be to demonstrate instances of persistent asset mispricing. By persistent we mean the existence and achievement of a stable equilibrium where market prices deviate from an underlying fundamental value. These equilibria will be demonstrated through three variations on a general model in which agents make investment decisions on an initial public offering (IPO), given imperfect information on a stock’s true, fundamental value. The first variation holds agents’ beliefs fixed, and trades are conducted “blindly” through a market maker who clears the market by adjusting the stock price. The model establishes a case for initial …