A Limit Theorem for Financial Markets with Inert Investors

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dc.creatorBayraktar, Erhan
dc.creatorHorst, Ulrich
dc.creatorSircar, Ronnie
dc.date2007-03-28
dc.date.accessioned2026-07-07T12:07:24Z
dc.date.available2026-07-07T12:07:24Z
dc.descriptionWe study the effect of investor inertia on stock price fluctuations with a market microstructure model comprising many small investors who are inactive most of the time. It turns out that semi-Markov processes are tailor made for modelling inert investors. With a suitable scaling, we show that when the price is driven by the market imbalance, the log price process is approximated by a process with long range dependence and non-Gaussian returns distributions, driven by a fractional Brownian motion. Consequently, investor inertia may lead to arbitrage opportunities for sophisticated market participants. The mathematical contributions are a functional central limit theorem for stationary semi-Markov processes, and approximation results for stochastic integrals of continuous semimartingales with respect to fractional Brownian motion.
dc.identifierhttps://arxiv.org/abs/math/0703831
dc.identifierhttp://arxiv.org/abs/math/0703831
dc.identifierMathematics of Operations Research, 2006, Volume 31 (4), 789-810
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/208959
dc.subjectProbability
dc.subjectStatistical Finance
dc.subject60F13, 60G15, 91B28
dc.titleA Limit Theorem for Financial Markets with Inert Investors
dc.typetext

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