A Rational Expectations Equilibrium with Informative Trading Volume
AbstractA large number of empirical studies find that trading volume contains information about the distribution of future returns. While these studies indicate that observing volume is helpful to an outside observer of the economy it is not clear how investors within the economy can learn from trading volume. In this paper, I show how trading volume helps investors to evaluate the precision of the aggregate information in the price. I construct a model that offers a closed-form solution of a rational expectations equilibrium where all investors learn from (1) private signals, (2) the market price, and (3) aggregate trading volume. Copyright (c) 2009 the American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 64 (2009)
Issue (Month): 6 (December)
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- 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).
- Gebka, Bartosz & Wohar, Mark E., 2013. "Causality between trading volume and returns: Evidence from quantile regressions," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 144-159.
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