PRICE BARRIERS AND THE DYNAMICS OF ASSET PRICES IN EQUILIBRIUM

A price barrier is a price level at which a large number of investors either buy or sell securities. We analyze the dynamics of asset prices in an economy in which price barriers exist. Our analysis suggests th at asset prices and volatility can exhibit jumps when the price barrie r is reached, Interestingly, the market's anticipation of future trade s can influence prices in the opposite direction from what one might e xpect. For example, when multiple barriers exist, stock prices can be inflated, rather than depressed, in the proximity of an anticipated st ock sale.