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research article

Modelling price pressure in financial markets

Asparouhova, Elena
•
Bossaerts, Peter  
2009
Journal Of Economic Behavior & Organization

We present experimental evidence that, unlike traditional assumptions in economic theory, security prices do not respond to pressure from their own excess demand. Instead, prices respond to excess demand of all securities, despite the absence of a direct link between markets. We propose a model of price pressure that explains these findings. In our model, agents set order prices that reflect the marginal valuation of desired future holdings, called "aspiration levels."

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