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Price Barriers and the Dynamics of Asset Prices in Equilibrium

Published online by Cambridge University Press:  06 April 2009

Pierluigi Balduzzi ,
Silverio Foresi  and
David J. Hait
Pierluigi Balduzzi
Affiliation:
Finance Department, Stern School of Business, New York University, New York, NY 10012
Silverio Foresi
Affiliation:
Finance Department, Stern School of Business, New York University, New York, NY 10012
David J. Hait
Affiliation:
Finance Department, Stern School of Business, New York University, New York, NY 10012
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Abstract

A price barrier is a price level at which a large number of investors either buy or sell securities. We analyze the dynamics of asset prices in an economy in which price barriers exist. Our analysis suggests that asset prices and volatility can exhibit jumps when the price barrier is reached. Interestingly, the market's anticipation of future trades can influence prices in the opposite direction from what one might expect. For example, when multiple barriers exist, stock prices can be inflated, rather than depressed, in the proximity of an anticipated stock sale.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 32 , Issue 2 , June 1997 , pp. 137 - 159
Copyright
Copyright © School of Business Administration, University of Washington 1997

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