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Essays On Asymmetric Information And Trading Constraints

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Essays On Asymmetric Information And Trading Constraints

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Author : György Venter
language : en
Publisher:
Release Date : 2011

Essays On Asymmetric Information And Trading Constraints written by György Venter and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.

This thesis contains three essays exploring the asset pricing implications of asymmetric information and trading constraints. Chapter 1 studies how short-sale constraints affect the informational efficiency of market prices and the link between prices and economic activity. I show that under short-sale constraints security prices contain less information. However, short-sale constraints increase the informativeness of prices to some agents who learn about the quality of an investment opportunity from market prices and have additional private information. This, in turn, can lead to higher allocative efficiency in the real economy. My result thus implies that the decrease in average informativeness due to short-sale constraints can be more than compensated by an increase in informativeness to some agents. In Chapter 2, I develop an equilibrium model of strategic arbitrage under wealth constraints. Arbitrageurs optimally invest into a fundamentally riskless arbitrage opportunity, but if their capital does not fully cover losses, they are forced to close their positions. Strategic arbitrageurs with price impact take this constraint into account and try to induce the fire sales of others by manipulating prices. I show that if traders have similar proportions of their capital invested in the arbitrage opportunity, they behave cooperatively. However, if the proportions are very different, the arbitrageur who is less invested predates on the other. The presence of other traders thus creates predatory risk, and arbitrageurs might be reluctant to take large positions in the arbitrage opportunity in the first place, leading to an initially slow convergence of prices. Chapter 3 (joint with Dömötör Pálvölgyi) studies the uniqueness of equilibrium in a textbook noisy rational expectations economy model a la Grossman and Stiglitz (1980). We provide a very simple proof to show that the unique linear equilibrium of their model is the unique equilibrium when allowing for any continuous price function, linear or not. We also provide an algorithm to create a (non-continuous) equilibrium price that is different from the Grossman-Stiglitz price.

Essays On Asymmetric Information In Financial Markets

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Author : Bradyn Mitchel Breon-Drish
language : en
Publisher:
Release Date : 2011

Essays On Asymmetric Information In Financial Markets written by Bradyn Mitchel Breon-Drish and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.

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.

Three Essays On Heterogeneity Insurance And Asset Pricing

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Author : Tsvetanka Karagyozova
language : en
Publisher:
Release Date : 2007

Three Essays On Heterogeneity Insurance And Asset Pricing written by Tsvetanka Karagyozova and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.

Essays On Asymmetric Information In International Finance

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Author : Aaron Hong Wai Low
language : en
Publisher:
Release Date : 1992

Essays On Asymmetric Information In International Finance written by Aaron Hong Wai Low and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992 with International finance categories.

Essays On Financial Markets With Asymmetric Information

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Author : Robert Lee Heinkel
language : en
Publisher:
Release Date : 1978

Essays On Financial Markets With Asymmetric Information written by Robert Lee Heinkel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1978 with categories.

Three Essays On Information And Asset Pricing

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Author : Xin Zhou
language : en
Publisher:
Release Date : 2008

Three Essays On Information And Asset Pricing written by Xin Zhou and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Assets (Accounting) categories.

The second essay examines the effect of a short-sale constraint on risky asset price in a rational expectations model with asymmetric information. Imposing a short-sale constraint creates two competing effects. On one hand, it reduces the risky asset supply and exerts upward pressure on asset price. On the other hand, it forces investors with negative views on asset payoff to be sidelined. The latter effect can reduce the informational efficiency of asset price, which in turn decreases investors' demand for the risky asset. Consequently, imposing a short-sale constraint can bias equilibrium asset price in either direction depending on which effect dominates. Empirical analysis using short interest and institutional ownership data suggests that an increase in short interest relative to shares outstanding for individual stocks reduces informational efficiency measured by the probability of information-based trading and leads to lower risk adjusted stock returns. The effect of short-sale constraint on return volatility is ambiguous.