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Author: Eduardo Dávila
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We show that outcomes (parameter estimates and R-squareds) of regressions of prices on fundamentals allow us to recover exact measures of the ability of asset prices to aggregate dispersed information. Formally, we show how to recover absolute and relative price informativeness in dynamic environments with rich heterogeneity across investors (regarding signals, private trading needs, or preferences), minimal distributional assumptions, multiple risky assets, and allowing for stationary and non-stationary asset payoffs. We implement our methodology empirically, finding stock-specific measures of price informativeness for U.S. stocks. We find a right-skewed distribution of price informativeness, measured in the form of the Kalman gain used by an external observer that conditions its posterior belief on the asset price. The recovered mean and median are 0.05 and 0.02 respectively. We find that price informativeness is higher for stocks with higher market capitalization and higher trading volume.
Author: Eduardo Dávila
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We show that outcomes (parameter estimates and R-squareds) of regressions of prices on fundamentals allow us to recover exact measures of the ability of asset prices to aggregate dispersed information. Formally, we show how to recover absolute and relative price informativeness in dynamic environments with rich heterogeneity across investors (regarding signals, private trading needs, or preferences), minimal distributional assumptions, multiple risky assets, and allowing for stationary and non-stationary asset payoffs. We implement our methodology empirically, finding stock-specific measures of price informativeness for U.S. stocks. We find a right-skewed distribution of price informativeness, measured in the form of the Kalman gain used by an external observer that conditions its posterior belief on the asset price. The recovered mean and median are 0.05 and 0.02 respectively. We find that price informativeness is higher for stocks with higher market capitalization and higher trading volume.
Author: Eduardo Dávila
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages : 51
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Book Description
We explore the equilibrium relation between price volatility and price informativeness in financial markets, with the ultimate goal of characterizing the type of inferences that can be drawn about price informativeness by observing price volatility. We identify two different channels (noise reduction and equilibrium learning) through which changes in price informativeness are associated with changes in price volatility. We show that when informativeness is sufficiently high (low) volatility and informativeness positively (negatively) comove in equilibrium for any change in primitives. In the context of our leading application, we provide conditions on primitives that guarantee that volatility and informativeness always comove positively or negatively. We use data on U.S. stocks between 1963 and 2017 to recover stock-specific primitives and find that most stocks lie in the region of the parameter space in which informativeness and volatility comove negatively.
Author: Eduardo Dávila
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We explore the equilibrium relation between price volatility and price informativeness in financial markets, with the ultimate goal of characterizing the type of inferences that can be drawn about price informativeness by observing price volatility. We identify two different channels (noise reduction and equilibrium learning) through which changes in price informativeness are associated with changes in price volatility. We show that when informativeness is sufficiently high (low) volatility and informativeness positively (negatively) comove in equilibrium for any change in primitives. In the context of our leading application, we provide conditions on primitives that guarantee that volatility and informativeness always comove positively or negatively. We use data on U.S. stocks between 1963 and 2017 to recover stock-specific primitives and find that most stocks lie in the region of the parameter space in which informativeness and volatility comove negatively.
Author: Jérôme Dugast
Publisher:
ISBN:
Category : Business enterprises
Languages : en
Pages : 0
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Book Description
Investors can acquire either raw or processed information about the payoff of risky assets. Information processing filters out the noise in raw information but it takes time. Hence, investors buying processed information trade with a lag relative to investors buying raw information. As the cost of raw information declines, more investors trade on it, which reduces the value of processed information, unless raw information is very unreliable. Thus, a decline in the cost of raw information can reduce the demand for processed information and, for this reason, the informativeness of asset prices in the long run.
Author: Kei Kawakami
Publisher:
ISBN:
Category :
Languages : en
Pages : 15
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Book Description
A quadratic-normal model has been a workhorse model in finance. While it can be derived from a CARA preference, some recent papers use risk-neutral traders facing an inventory cost to generate a quadratic-normal structure. So far, a relationship between the two models has been unclear. Using a simple framework nesting both models, I highlight a key economic difference between the two models, and demonstrate that they can produce distinct predictions with respect to price informativeness, volatility, volume, and price impact in response to a change in public information. Implications of the results for an identification of trading motives are discussed.
Author: Christoph Siemroth
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
When can policy makers use policy-relevant information from financial market prices and how does policy affect price informativeness? I analyze a novel setting with noise where a policy maker tries to infer information about a state variable from prices to improve policy decisions, and policy in turn affects asset values. I derive a necessary and sufficient condition for the possibility of information revelation in equilibrium, which might not be possible if the policy reaction to prices punishes traders for revealing their information. If the policy maker is uninformed, then policy objectives do not change price informativeness, but they do if the policy maker has independent information about the state. I also analyze policy maker transparency, and find that policy makers with objectives having a large impact on asset values should publish their information before trading to make prices more informative. In other cases, intransparency can be optimal.
Author: Rohit Rahi
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: H. Nejat Seyhun
Publisher: MIT Press
ISBN: 9780262692342
Category : Business & Economics
Languages : en
Pages : 452
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Book Description
Learn how to profit from information about insider trading. The term insider trading refers to the stock transactions of the officers, directors, and large shareholders of a firm. Many investors believe that corporate insiders, informed about their firms' prospects, buy and sell their own firm's stock at favorable times, reaping significant profits. Given the extra costs and risks of an active trading strategy, the key question for stock market investors is whether the publicly available insider-trading information can help them to outperform a simple passive index fund. Basing his insights on an exhaustive data set that captures information on all reported insider trading in all publicly held firms over the past twenty-one years—over one million transactions!—H. Nejat Seyhun shows how investors can use insider information to their advantage. He documents the magnitude and duration of the stock price movements following insider trading, determinants of insiders' profits, and the risks associated with imitating insider trading. He looks at the likely performance of individual firms and of the overall stock market, and compares the value of what one can learn from insider trading with commonly used measures of value such as price-earnings ratio, book-to-market ratio, and dividend yield.
Author: Qi Chen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper analyzes the effects of public information in a perfect competition trading model populated by asymmetrically informed short-horizon investors with different levels of private information precision. We first show that information asymmetry reduces the amount of private information revealed by price in equilibrium (i.e., price informativeness) and can lead to multiple linear equilibria. We then demonstrate that the presence of both information asymmetry and short horizons provides a channel through which public information influences price informativeness and equilibrium uniqueness. We identify conditions under which public information increases or decreases price informativeness, and when multiple equilibria may arise. Our analysis shows that public information not only directly endows prices with more (public) information, it can also have an important indirect effect on the degree to which prices reveal private information.
Author: Hong Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
We study the effect of the rise of indexing on price discovery. We show that this effect critically depends on the causes of the rise of indexing and the cost structure of information acquisition. If the rise of indexing is due to increased cost of participating in the non-index market, then the price informativeness of the non-index decreases. In contrast, if it is due to improved market transparency and thus lower profitability in the non-index market, then the price informativeness of the non-index increases. In both cases, the price informativeness of the index tends to increase (resp. decrease) and thus market risk premium decreases (resp. increases) if acquiring information in one market increases (resp. decreases) information acquisition cost in another market. In addition, after an exogenous rise of indexing, price informativeness in both index and non-index markets declines. Moreover, social welfare may increase with indexing and active investors may "free ride" on discretionary indexers' information acquisition in the index market. Our analysis provides testable implications that can help identify the driving force of the rise of indexing.
