Early warrant pricing theory grounded market price in marginal investors’ expectations and preferences

Evidence

Sprenkle (1961, pp. 199-201) assumed that the values of his three unknowns, and thus the value of a warrant, would vary from investor to investor: `Actual prices of the warrant then reflect the consensus of marginal investors’ opinions the marginal investors’ expectations and preferences are the same as the market’s expectations and preferences.” — Donald MacKenzie, An Engine, Not a Camera, 537

Categorization

• XREF: connects to: Attempts to infer investor risk attitudes from market prices failed empirically — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 538; Pre-Black-Scholes option valuation needed investor risk attitude as an unobservable input — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 536; Risk attitude determines how an investment’s value differs from its expected payoff — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 534 (+2 more)

Broader Connections

• Risk attitude determines how an investment’s value differs from its expected payoff #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 534
• Asset prices can embed subjective probabilities of events that never actually occur #expands (0.78) — Donald MacKenzie, An Engine, Not a Camera, 1587
• Warrant prices are bounded by no-arbitrage constraints against stock prices #qualifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 551