Sunday, December 25, 2016

Stocks and k-states, part III

Adding to this post [1] on the information/statistical equilibrium picture of the stock market, I should note that the ratio $M/B$ is (one version of) "Tobin's Q", making $Q$ proportional to the stock price $p$ (or aggregate industry stock price $\Sigma_{i \in I} \; p_{i}$):

p \equiv \frac{dM}{dB} = k \; \frac{M}{B} = k \; Q

This wouldn't necessarily predict investment (per Tobin's original argument cited here), but as described in [1] can be used to understand price dynamics. The information equilibrium framework is actually agnostic about the underlying dynamics ‒ assuming only that they're algorithmically complex.

No comments:

Post a Comment

Comments are welcome. Please see the Moderation and comment policy.

Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.

Note: Only a member of this blog may post a comment.