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a.) Express aggregate demands by arbitrageurs and noise traders from problem 3 as a function of O and o . When do arbitrageurs short the
a.) Express aggregate demands by arbitrageurs and noise traders from problem 3 as a function of O and o . When do arbitrageurs short the asset? When do noise traders short? What is the short interest (aggregate negative demand)? b.) Describe a simple empirical test of this theoretical relation, specifying measurable proxies for the supply of shares (O) and differences of opinion ( 6 ). Now assume that short selling is prohibited: individual demand for the risky asset is max D .0)
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