A Mispricing Model of Stocks Under Asymmetric Information
AbstractWe extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean--reverting Ornstein--Uhlenbeck process. Optimal portfolios and maximum expected log--linear utilities from terminal wealth for informed and uninformed investors are derived. We obtain analogous but more general results which nests those of Guasoni (2006) as a special case of the relative risk aversion approaching one.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1101.1148.
Date of creation: Jan 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-16 (All new papers)
- NEP-CTA-2011-01-16 (Contract Theory & Applications)
- NEP-UPT-2011-01-16 (Utility Models & Prospect Theory)
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- De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990.
"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 703-38, August.
- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
- J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
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