Models of price dynamics in financial markets and the process of speculative bubble formation.

Summary This thesis deals with models of price dynamics in financial markets. It focuses in particular on the revelation of information in markets and the possible distortion of their interpretation on stock prices that can lead to the formation of speculative bubbles. The first two chapters present a review of the literature and an extensive summary of the main results of our thesis. In particular, we develop the notions of informational efficiency, behavioral finance and Bayesian equilibrium. The third chapter presents investors who can split their orders among several market makers. Since all market makers are risk averse, they trade on an informational basis and on an optimal level of risky assets to hold. We show that the more risk averse the market makers are, the less liquidity they provide. Moreover, competition between markets is not automatically to the advantage of investors. In chapter four, we confront rational informed agents with overconfident agents and agents who trade based on the stock market trend. We establish that feedback increases price volatility and is the main cause of speculative bubble formation. Overconfident agents increase price quality in the presence of feedback. Chapter five is a generalization of the Kyle (1985) model with multiple insiders who have heterogeneous noisy signals. We establish that the efficiency of such a market is very strong and that signals must be more accurate the more auctions or insiders there are.