Price Volatility and Investor Behavior in an Overlapping Generations Model with Information Asymmetry
AbstractThis paper studies an overlapping generations model with multiple securities and heterogeneously informed agents. The model produces multiple equilibria, including highly volatile equilibria that can exhibit strong or weak correlations between asset returns-even when asset supplies and future dividends are uncorrelated across assets. Less informed agents rationally behave like trend-followers, while better informed agents follow contrarian strategies. Trading volume has a hump-shaped relation with information precision and is positively correlated with absolute price changes. Finally, accurate information increases the volatility and correlation of stock returns in the highly volatile, strongly correlated equilibrium. Copyright 2008 by The American Finance Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 63 (2008)
Issue (Month): 1 (02)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Makarov, Igor & Rytchkov, Oleg, 2012. "Forecasting the forecasts of others: Implications for asset pricing," Journal of Economic Theory, Elsevier, vol. 147(3), pages 941-966.
- Yun Wang & Renhai Hua & Zongcheng Zhang, 2011. "The investor behavior and futures market volatility: A theory and empirical study based on the OLG model and high-frequency data," China Finance Review International, Emerald Group Publishing, vol. 1(4), pages 388-407, August.
- Albagli, Elias & Hellwig, Christian & Tsyvinski, Aleh, 2013.
"A Theory of Asset Prices based on Heterogeneous Information,"
CEPR Discussion Papers
9291, C.E.P.R. Discussion Papers.
- Elias Albagli & Christian Hellwig & Aleh Tsyvinski, 2011. "A Theory of Asset Prices Based on Heterogeneous Information," Cowles Foundation Discussion Papers 1827, Cowles Foundation for Research in Economics, Yale University.
- Christian Hellwig & Aleh Tsyvinski & Elias Albagli, 2012. "A theory of asset prices based on heterogeneous information," 2012 Meeting Papers 394, Society for Economic Dynamics.
- Elias Albagli & Christian Hellwig & Aleh Tsyvinski, 2012. "A Theory of Asset Prices Based on Heterogeneous Information," Levine's Working Paper Archive 786969000000000347, David K. Levine.
- Xue-Zhong He & Lei Shi, 2012. "Heterogeneous Beliefs and the Cross-Section of Asset Returns," Research Paper Series 303, Quantitative Finance Research Centre, University of Technology, Sydney.
- Jayant Ganguli & Scott Condie, 2012.
"The pricing effects of ambiguous private information,"
Economics Discussion Papers
720, University of Essex, Department of Economics.
- Scott Condie & Jayant Ganguli, 2012. "The Pricing Effects of Ambiguous Private Information," INET Research Notes 16, Institute for New Economic Thinking (INET).
- Xue-Zhong He & Lei Shi & Min Zheng, 2012. "Asset Pricing Under Keeping Up With the Joneses and Heterogeneous Beliefs," Research Paper Series 302, Quantitative Finance Research Centre, University of Technology, Sydney.
- Elías Albagli, 2013. "Investment Horizons and Asset Prices under Asymmetric Information," Working Papers Central Bank of Chile 709, Central Bank of Chile.
- Elías Albagli & Christian Hellwig & Aleh Tsyvinski, 2014. "Dynamic Dispersed Information and the Credit Spread Puzzle," Working Papers Central Bank of Chile 720, Central Bank of Chile.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.