Learning from Others in the Financial Market.
Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g of expected returns). This is because such a model would have to include knowledge about the market participants' propensity to change their opinions on the validity of that model. This leads to a circular situation characteristic of markets, where participants collectively create the target variables they wish to estimate. In this paper, we introduce a framework for generating expectation models and study the conditions under which they are adopted by a majority of market participants.