Erschienen:
Cambridge, Mass: National Bureau of Economic Research, March 1995
Erschienen in:NBER technical working paper series ; no. t0175
Umfang:
1 Online-Ressource
Sprache:
Englisch
DOI:
10.3386/t0175
Identifikator:
Reproduktionsnotiz:
Hardcopy version available to institutional subscribers
Entstehung:
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Mode of access: World Wide Web
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Beschreibung:
Many recent theoretical papers have come under attack for modeling prices as Geometric Brownian Motion. This process can diverge over time, implying that firms facing this price process can earn infinite profits. We explore the significance of this attack and contrast investment under Geometric Brownian Motion with investment assuming mean reversion. While analytically more complex, mean reversion in many cases is a more plausible assumption, allowing for supply responses to increasing prices. We show that cumulative investment is generally unaffected by the use of a mean reversion process rather than Geometric Brownian Motion and provide an explanation for this result