[Research Seminar] IℚUANT: “Fundamental volatility and financial stability” S. GAUTHIER – PSE
Speaker: Stéphane GAUTHIER
PCE
Date and Location – Thursday October 26th 2023 from 14:00 to 15:30 on Zoom
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ABSTRACT
Financial investors choose the capital they invest into risky firms based on the return they expect. The actual return depends on the aggregate investment, which gives rise to beauty contest issues. The paper characterizes how the ability of investors to solve these issues relates to the amount of fundamental uncertainty. It exploits this link to provide a quantitative assessment of the contribution of fundamentals to market volatility. Volatility would be driven by fundamentals in most markets. If out of equilibrium beliefs matter, however, they significantly contribute to observed volatility.