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Author: Qi Chen
Publisher:
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Languages : en
Pages :
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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: 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: Rajdeep Singh
Publisher:
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Category :
Languages : en
Pages : 0
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Author: Gilad Livne
Publisher:
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Category :
Languages : en
Pages :
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This paper investigates inter-temporal relations in market liquidity and price efficiency in a setting that is more descriptive of trading patterns around public announcements than those typically analyzed in the existing literature. The model incorporates both strategic investors who behave as short-term, profit-taking traders, and traders who invest in the security over a long-term horizon. It is shown that an anticipated increase in market liquidity in the announcement period will lead short-term investors to trade more aggressively in the pre-announcement period. This results in improved price efficiency and, in some cases, increased market liquidity in the pre-announcement period. However, a higher propensity to behave as a profit-taker in the announcement period leads to less efficient prices in the pre-announcement period.
Author: Bradyn Mitchel Breon-Drish
Publisher:
ISBN:
Category :
Languages : en
Pages : 194
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This dissertation studies the effects of asymmetric information and learning on asset prices and investor decision-making. Two main themes run through the work. The first is the linkage between investor decisions and the information used to make those decisions; that is, portfolio choices reflect the nature and quality of available information. The second theme is the interaction between investor learning and price informativeness. The information held by individual investors is reflected in market prices through their trading decisions, and prices thus transmit this information to other investors. In the first chapter, Asymmetric Information in Financial Markets: Anything Goes, I study a standard Grossman and Stiglitz (1980) noisy rational expectations economy, but relax the usual assumption of the joint normality of asset payoff and supply. The primary contribution is to characterize how the equilibrium relation between price and fundamentals depends on the way in which investors react to the information contained in price. My solution approach dispenses with the typical "conjecture and verify" method, which allows me to analytically solve an entire class of previously intractable nonlinear models that nests the standard model. This simple generalization provides a purely information-based channel for many common phenomena. In particular, price jumps and crashes may arise endogenously, purely due to learning effects, and observation of the net trading volume may be valuable for investors in the economy as it can provide a refinement of the information conveyed by price. Furthermore, the value of acquiring information may be non-monotonic in the number of informed traders, leading to multiple equilibria in the information market. I show also that the relation between investor disagreement and returns is ambiguous and depends on higher moments of the return distribution. In short, many of the standard results from noisy rational expectations models are not robust. I introduce monotone likelihood ratio conditions that determine the signs of the various comparative statics, which represents the first demonstration of the implicit importance of the MLRP in the noisy rational expectations literature. In the second chapter Do Fund Managers Make Informed Asset Allocation Decisions?, a joint work with Jacob S. Sagi, we derive a dynamic model in which mutual fund managers make asset allocation decisions based on private and public information. The model predicts that the portfolio market weights of better informed managers will mean revert faster and be more variable. Conversely, portfolio weights that mean revert faster and are more variable should have better forecasting power for expected returns. We test the model on a large dataset of US mutual fund domestic equity holdings and find evidence consistent with the hypothesis of timing ability, especially at three- to 12-month forecasting horizons. Nevertheless, whatever timing ability may be reflected in portfolio weights does not appear to translate into higher realized returns on funds' portfolios.
Author: Xavier Vives
Publisher: Princeton University Press
ISBN: 140082950X
Category : Business & Economics
Languages : en
Pages : 422
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Book Description
The ways financial analysts, traders, and other specialists use information and learn from each other are of fundamental importance to understanding how markets work and prices are set. This graduate-level textbook analyzes how markets aggregate information and examines the impacts of specific market arrangements--or microstructure--on the aggregation process and overall performance of financial markets. Xavier Vives bridges the gap between the two primary views of markets--informational efficiency and herding--and uses a coherent game-theoretic framework to bring together the latest results from the rational expectations and herding literatures. Vives emphasizes the consequences of market interaction and social learning for informational and economic efficiency. He looks closely at information aggregation mechanisms, progressing from simple to complex environments: from static to dynamic models; from competitive to strategic agents; and from simple market strategies such as noncontingent orders or quantities to complex ones like price contingent orders or demand schedules. Vives finds that contending theories like informational efficiency and herding build on the same principles of Bayesian decision making and that "irrational" agents are not needed to explain herding behavior, booms, and crashes. As this book shows, the microstructure of a market is the crucial factor in the informational efficiency of prices. Provides the most complete analysis of the ways markets aggregate information Bridges the gap between the rational expectations and herding literatures Includes exercises with solutions Serves both as a graduate textbook and a resource for researchers, including financial analysts
Author: Jennifer Francis
Publisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
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Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Author: Joshua Ronen
Publisher: Springer Science & Business Media
ISBN: 0387257713
Category : Business & Economics
Languages : en
Pages : 587
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Book Description
This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
Author: Maureen O'Hara
Publisher: John Wiley & Sons
ISBN: 0631207619
Category : Business & Economics
Languages : en
Pages : 310
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Book Description
Written by one of the leading authorities in market microstructure research, this book provides a comprehensive guide to the theoretical work in this important area of finance.
Author: Hersh Shefrin
Publisher: College Ie Overruns
ISBN: 9781259254864
Category : Corporations
Languages : en
Pages : 300
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Author: Bank of Canada
Publisher:
ISBN:
Category : Canada
Languages : en
Pages : 310
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