The Behavior of Financial Markets under Rational Expectations

The financial markets have become more and more important in modern society. Their behaviour and impact relies crucially on the behaviour of market participants, aka the investors of different types. Although descriptions of the financial markets on the macro level have caught the attention of investors, regulators, and the ordinary people, how the market participants interact with each other in the financial market may provide deeper insights on how and why the financial markets behave.

This book explores the micro level of financial market behaviour. The author has been undertaking financial research, especially on the micro level, during the past two decades. The academic research on this broad area has undergone a rapid growth, with new results, methods, theories, and even paradigms, emerging and burogeoning almost every year. As a financial researcher in one of China’s top universities, the author has kept monitoring, digesting, and synthesising the research articles in the area.

This book is the outcome of this decades-long routine research work of the author, covering the fundamental economic theories of how different investors receive and interpret information. The empirical results of investors' behaviour are also discussed in depth, along with the basic academic techniques of modelling investors' behaviour.