Cross-Asset Speculation in Stock Markets
In practice, heterogeneously informed speculators combine private information about multiple stocks with information in prices, taking into account how their trades influence the inferences of other speculators via prices. We show how this speculation causes prices to be more correlated than asset fundamentals, raising price volatility. The covariance structure of asset fundamentals drives that of prices, while the covariance structure of liquidity trade drives that of order flows. We characterize how speculator profits vary with the distributions of information and liquidity trade across assets and speculators, and relate the cross-asset factor structure of order flows to that of returns. Copyright (c) 2008 The American Finance Association.
Year of publication: |
2008
|
---|---|
Authors: | BERNHARDT, DAN ; TAUB, BART |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 63.2008, 5, p. 2385-2427
|
Publisher: |
American Finance Association - AFA |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Cross-asset speculation in stock markets
Bernhardt, Dan, (2008)
-
Bernhardt, Dan, (2010)
-
How and when is dual trading irrelevant?
Bernhardt, Dan, (2010)
- More ...