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Herd on the Street : Informational Inefficiencies in a Market with Short-Term Speculation

Froot, Kenneth - 2001

Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e, can hold the asset forever. By contrast, we show that if speculators have short horizons, they...

Persistent link: https://www.econbiz.de/10012787681

Private Information and Sunspots in Sequential Asset Markets

Benhabib, Jess - 2014

We study a model where some agents have private information about risky asset returns and trade to obtain capital gains, while others acquire the risky asset and hold it to maturity, forming expectations of returns based on market prices. We show that under such a structure, in addition to fully...

Persistent link: https://www.econbiz.de/10013055498

How Constraining are Limits to Arbitrage? Evidence from a Recent Financial Innovation

Ljungqvist, Alexander - 2014

Limits to arbitrage play a central role in behavioral finance. They are thought to interfere with arbitrage processes … innovation that allows limits to arbitrage to be sidestepped, and overvaluation thereby to be corrected, even in settings … innovation that allows the arbitrageurs to sidestep limits to arbitrage involves credibly revealing their information to the …

Persistent link: https://www.econbiz.de/10013060263

Identifying Price Informativeness

Davila, Eduardo - 2018

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...

Persistent link: https://www.econbiz.de/10012908481

Trading Costs and Informational Efficiency

Davila, Eduardo - 2019

We study the effect of trading costs on information aggregation and acquisition in financial markets. For a given precision of investors' private information, an irrelevance result emerges when investors are ex-ante identical: price informativeness is independent of the level of trading costs....

Persistent link: https://www.econbiz.de/10012890471

Private Information and its Effect on Market Equilibrium : New Evidence from Long-Term Care Insurance

Finkelstein, Amy - 2010

This paper examines the standard test for asymmetric information in insurance markets: that its presence will result in a positive correlation between insurance coverage and risk occurrence. We show empirically that while there is no evidence of this positive correlation in the long-term care...

Persistent link: https://www.econbiz.de/10012762777

Efficiency and Information Transmission in Bilateral Trading

Shimer, Robert - 2015

We study pairwise trading mechanisms in the presence of private information and limited commitment, whereby either trader can walk away from a proposed trade when he learns the trading price. We show that when one trader's information is relevant for the other trader's value of the asset,...

Persistent link: https://www.econbiz.de/10013017078

Counterparty Risk Externality : Centralized Versus Over-the-Counter Markets

Acharya, Viral V. - 2011

We model the opacity of over-the-counter (OTC) markets in a setup where agents share risks, but have incentives to default and their financial positions are not mutually observable. We show that this setup results in excess "leverage" in that parties take on short OTC positions that lead to...

Persistent link: https://www.econbiz.de/10013125914

The Inefficient Markets Hypothesis : Why Financial Markets Do Not Work Well in the Real World

Farmer, Roger E. A. - 2012

Existing literature continues to be unable to offer a convincing explanation for the volatility of the stochastic discount factor in real world data. Our work provides such an explanation. We do not rely on frictions, market in completeness or transactions costs of any kind. Instead, we modify a...

Persistent link: https://www.econbiz.de/10013096129

On the Asset Market View of Exchange Rates

Burnside, A. Craig - 2012

If the asset market is complete then the difference between foreign and domestic agents' log intertemporal marginal rates of substitution (IMRSs) equals the log change in the real exchange rate. This equation is frequently used to argue that changes in real exchange rates reflect differences...

Persistent link: https://www.econbiz.de/10013096132

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