Modeling of stock returns in continuous vis-a-vis discrete time is equivalent, respectively to the conditioning of stock returns on a random walk process for trade imbalances vis-a-vis a random walk process for evolution of information
Annals of Financial Economics 17, 2250010
44 Pages Posted: 16 Jun 2021 Last revised: 24 Jun 2022
Date Written: March 10, 2022
Abstract
Let p, p(I), ϱ, and p(M) denote, respectively the current stock price, the future stock price that is conditioned on information, the minimum stock market tick size, and the realized future stock price. Formal theoretical proofs in this study show modeling of stock returns in continuous time induces stock returns that have parameterization as gambles over lotteries. Stock returns have parameterization as gambles, because in presence of fairness of formation of, p<[p+ϱ]
Keywords: Connectedness, Rational Expectations, General Equilibrium, Mechanism Design, Stock Prices, Lotteries
JEL Classification: G17, D53, C02
Suggested Citation: Suggested Citation