TRADING BEHAVIOR AND ASSET PRICING UNDER HETEROGENEOUS EXPECTATIONS

This research models trading behavior and examines the impact of heterogeneous expectations on asset prices. We extend Kyle’s (1985) one-period model to two-period model. The model shows that the informed trader takes into account not only the private information but also the pricing function. The price is an increasing function of the volatility of the asset value and decreasing in the volatility of uninformed traders’ demand. The costly information acquisition has an impact on the optimum demand but it has no direct impact on the price.We find the market depth is a linear function of the volatility of the uninformed traders and a weighted average of the total error variance of information. The depth is also decreasing in the volatility of the cash flow innovations. This argument is in line with the second finding, when the volatility of cash flow innovations increases, the value of risky asset becomes more volatile, and as a result the bigger are the advantages of having private information. Our research raises some questions for further investigation. We indirectly assume that the informed traders make a profit at the expense on the uninformed traders. The question is why the uninformed traders willing to face losses? What happen if there are n informed traders who have diverse information?

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Pengaruh Moderasi Kepribadian (Big Five Personality) Terhadap Hubungan Akuisisi Informasi dan Perilaku Perdagangan Saham Pada Investor Muda di Indonesia

Media Riset Bisnis & Manajemen ◽

10.25105/mrbm.v19i2.5353 ◽

2019 ◽

Vol 19 (2) ◽

pp. 82

Author(s):

Chentya Novianty ◽

Maria C. Widyaastuti

Keyword(s):

Big Five ◽

Analytical Method ◽

Information Acquisition ◽

Positive Relationship ◽

Big Five Personality ◽

Trading Behavior ◽

Stock Trading ◽

Relationship Of ◽

The Impact ◽

The Relationship

AbstrakTujuan - Penelitian ini bertujuan untuk menganalisis dampak frekuensi akuisisi informasi pada frekuensi perdagangan saham yang dimoderasikan oleh Kepribadian (Big Five Personality).Desain/Metodologi/Pendekatan - Data diperoleh langsung melalui penyebaran kuesioner kepada 304 responden yaitu investor muda (berusia 21 sampai 30 tahun) di Indonesia. Rancangan penelitian yang digunakan dalam penelitian ini adalah Pengujian Hipotesis. Metode analisis yang digunkanan dalam penelitian ini Ordinal Logistic Regresion dengan menggunakan program SPSS.Hasil Penelitian - Hasil dari penelitian ini adalah terdapat hubungan pada akuisisi informasi dan perilaku perdagangan saham, Investor yang tergolong Openness & Neuroticism akan memperlemah hubungan kedua variabel tersebut, sedangkan Conscientiousness, Extraversion dan Agreeableness akan memperkuat hubungan kedua variabel tersebut. Abstract Purpose –This paper was to investigate the impact of the frequency of information acquisition on the frequency of stock tradingDesign/Methodology/Approach – Data obtained directly by distributing questionnaires to 304 respondents is young investors (aged 21 to 30 years) in Indonesia. The research design used in this study is hypothesis testing. The analytical method used in this research is Ordinal Logistic Regresion using SPSS program.Findings - The results of this study were that there is a positive relationship between information acquisition and trading behavior. Investors belonging to Openness & Neuroticism will weaken the relationship of both variables, while Conscientiousness, Extraversion and Agreeableness will strengthen the relationship of both variables.

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The Existence of Equilibrium Asset Price Under Diverse Information

Gadjah Mada International Journal of Business ◽

10.22146/gamaijb.5583 ◽

2005 ◽

Vol 7 (3) ◽

pp. 351

Author(s):

R. Agus Sartono

Keyword(s):

Private Information ◽

Rational Expectation ◽

Asset Price ◽

Weighted Average ◽

Cash Flows ◽

Existence Of Equilibrium ◽

Risky Assets ◽

Market Depth ◽

Expectation Model ◽

Informed Traders

We investigate the effects of diverse information on the price of risky assets in rational expectation model. The expected cash flows innovation is considered as private information where informed trader knows it. It is assumed that the high informed trader has smaller variance error regarding the cash flows innovation than the low informed trader and uninformed traders. We found that the cash flow innovation influences the demand of informed trader. The market depth is a linear function of the demand of uninformed trader and weighted average of total variance error of information. Our finding supports previous research done by Spiegel and Subrahmanyam (1992).Our model shows that the more diverse the information, the higher the lambda coefficient which means the market becomes less liquid. The models consistent with Miller (1977) who found that the bigger the gap of private information is, the less liquid the market will be. If both informed traders have the same information they will demand the same amount of risky asset and it turns out to be similar as in the Kyle (1985) model.

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Strategic Informed Trades, Diversification, and Expected Returns

The Accounting Review ◽

10.2308/accr-51026 ◽

2015 ◽

Vol 90 (5) ◽

pp. 1811-1837 ◽

Cited By ~ 11

Author(s):

Judson Caskey ◽

John S. Hughes ◽

Jun Liu

Keyword(s):

Private Information ◽

Expected Returns ◽

Cross Sectional ◽

Risk Premiums ◽

Factor Loadings ◽

Large Economy ◽

Strategic Trade ◽

Concomitant Decrease ◽

Informed Traders ◽

The Impact

ABSTRACT We examine how strategic trade affects expected returns in a large economy. In our model, both a monopolist (strategic) informed trader and uninformed traders consider the impact of their demands on prices. In contrast to settings with price-taking traders, private information never eliminates a priced risk, and can lead to higher risk premiums. Also unlike settings with price-taking informed traders, risk premiums decrease in response to an increase in liquidity-motivated trades in diversified portfolios. These differing effects arise because a privately informed strategic trader conceals her trades by taking small positions relative to the magnitude of noise trades. Although prices partially reveal her information and reduce uncertainty, a concomitant decrease in her risk absorption dominates and leads to higher risk premiums. Similar to settings with price-taking traders, private information affects expected returns only via factor loadings and risk premiums on existing payoff risks—it introduces no new priced risks, and factor loadings (betas) explain all cross-sectional differences in expected returns.

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Trading in the Presence of Short-Lived Private Information: Evidence from Analyst Recommendation Changes

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109018000212 ◽

2018 ◽

Vol 53 (4) ◽

pp. 1509-1546 ◽

Cited By ~ 17

Author(s):

Ohad Kadan ◽

Roni Michaely ◽

Pamela C. Moulton

Keyword(s):

Private Information ◽

Information Acquisition ◽

Trading Strategies ◽

Data Set ◽

Liquidity Provision ◽

Information Models ◽

Trading Patterns ◽

Informed Traders ◽

Theoretical Predictions ◽

Informational Advantage

We use a proprietary data set to test the implications of several asymmetric information models on how short-lived private information affects trading strategies and liquidity provision. Our identification rests on information acquisition before analyst recommendations are publicly announced. We provide the first empirical evidence supporting theoretical predictions that early-informed traders “sell the news” after “buying the rumor.” Further, we find distinct profit-taking patterns across different classes of institutions. Uninformed institutions, but not individuals, emerge as de facto liquidity providers to better-informed institutions. Placebo tests confirm that these trading patterns are unique to situations in which some investors have a short-lived informational advantage.

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Private Information and Trading Behavior: KOSPI200 Futures Markets

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-02-2015-b0003 ◽

2015 ◽

Vol 23 (2) ◽

pp. 207-241

Author(s):

Taewoo Daniel Kim ◽

Kiyool Ohk

Keyword(s):

Private Information ◽

Regime Switching ◽

Futures Markets ◽

Individual Investors ◽

Trading Behavior ◽

Foreign Investors ◽

Market Participants ◽

Order Imbalance ◽

Contrarian Strategies ◽

Informed Traders

The study examines whether the trader’s order imbalance for KOSPI200 futures can explain their informativeness. I use daily positions of various types of futures market participants such as foreign investors, institution investors, and individual investors to identify informed traders. The positions of foreign investors, institution investors and individual investors are correlated with returns in KOSPI200 futures markets, but there is some debate as the interpretation of such a relationship. I find that the foreign investors’ position is informative to investors, supporting the private information view. In terms of trader’s behavior, foreign traders follow contrarian strategies and trade with higher information than individual and institutional traders, who trade as momentum. Also, I considering regime switching effects in this frameworks. In threshold regression models, I found a different behavior during futures return expansions and contractions or volatility expansions and contractions.

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Information acquisition and funding for public service agencies: imperfect categorizing

Journal of Economic and Administrative Sciences ◽

10.1108/jeas-03-2019-0029 ◽

2019 ◽

Vol 36 (3) ◽

pp. 246-257

Author(s):

Tao Zeng ◽

Horn-Chern Lin

Keyword(s):

Public Service ◽

Private Information ◽

Information Acquisition ◽

Screening Process ◽

Content Type ◽

True Cost ◽

The Government ◽

Public Service Agencies ◽

The Impact ◽

Service Agencies

Purpose The purpose of this paper is to explore the impact of information acquisition for the purpose of differentiating agencies operating in different localities on the design of optimal funding. Design/methodology/approach This paper is a theoretical study. The focus is on a situation in which agencies providing public services have perfect private information about their cost conditions before the government sets the formula for funding. Findings The authors show that, using a free signal correlated with costs of operation to differentiate agencies situated in different localities, the government can achieve better welfare for households across regions. However, when there exist non-negligible costs involved in the differentiating process, it may pay to acquire information only if the signal acquired is informative enough, i.e., the correlation between the signal and the agencies’ true cost conditions is strong enough. Social implications This paper is of interest to academics and policy makers. Acquiring information for tagging can be viewed as a preliminary screening process. Different types are then endowed with distinctly different incentives to control the costs of operating their agencies. Specifically, when the observed cost signal and the true cost conditions of agencies are positively correlated, the government should optimally be more aggressive in distorting the high-cost type’s effort decision by giving less incentive for the low-cost type agencies to cut costs than in the no-differentiation case, and vice versa. Originality/value This paper is the first study that explores the impact of information acquisition on the design of optimal funding for public service agencies.

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The Impact of Analyst Following on Stock Prices and the Implications for Firms' Disclosure Policies

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x9601100305 ◽

1996 ◽

Vol 11 (3) ◽

pp. 333-354 ◽

Cited By ~ 13

Author(s):

Brett Trueman

Keyword(s):

Private Information ◽

Stock Prices ◽

Direct Consequence ◽

Share Price ◽

Positive Relation ◽

Analyst Following ◽

Market Participants ◽

Precision Level ◽

Informed Traders ◽

The Impact

This paper shows that there is a positive relation between the number of analysts following a firm and the firm's expected share price. This relation is a direct consequence of market participants' inability to observe the number of informed traders in the market. It is further shown that a firm's manager can have an impact on analyst following by varying the precision of the private information analysts obtain about the firm. In equilibrium, the manager will choose a precision level greater than that which maximizes analyst following, but, in many cases, less than its largest possible value.

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