This program sets up an asset market in which traders are given
endowments of cash and asset "shares" with dividends that correspond to
consumption values if the asset is house, for example.
Cash may be kept in a safe account with a fixed
Final-period redemption values for the asset may either be known or random.
With random redemption values, private information signals about the
unknown common redemption value may be given to "insiders."
Traders submit buy or sell limit orders that are ranked and "crossed"
to determine a uniform market-clearing price. Traders are allowed to buy
on margin, by putting up a specified fraction of the purchase price of
the shares that they bid for, with the rest being borrowed. Loans are called
and the asset must be sold if the market price in the previous period falls
enough to wipe out the initial equity provided by the trader at the time of purchase.
The instructor may press a Stop Trading button to "call" the market if
some traders are inactive.
| || || || || ||The interest rate for cash induces a time preference and that determines the fundamental (present)
value of a share. Trading prices can be compared with the fundamental values
to identify bubbles or crashes driven by expectations and excessive leverage.
Vecon Lab - July 17, 2019