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Speculative investor behavior and learning

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Author Info
Stephen Morris

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Abstract

As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of re-selling the asset to another trader before complete learning has occurred. Small differences in prior beliefs lead to large speculative premiums during the learning process. This phenomenon helps explain a paradox concerning the pricing of initial public offerings. The result casts light on the significance of the common prior assumption in economic models.

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File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/1996/wp96-5.pdf
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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 96-5.

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Date of creation: 1996
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Handle: RePEc:fip:fedpwp:96-5

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Related research
Keywords: Investments ; Stock - Prices;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jarrow, Robert A, 1980. " Heterogeneous Expectations, Restrictions on Short Sales, and Equilibrium Asset Prices," Journal of Finance, American Finance Association, vol. 35(5), pages 1105-13, December. [Downloadable!] (restricted)
  2. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-68, September. [Downloadable!] (restricted)
  3. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February. [Downloadable!] (restricted)
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  4. Figlewski, Stephen, 1981. "The Informational Effects of Restrictions on Short Sales: Some Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 463-476, November. [Downloadable!]
  5. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March. [Downloadable!] (restricted)
  6. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(3), pages 473-506. [Downloadable!] (restricted)
  7. Harrison, J Michael & Kreps, David M, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 323-36, May. [Downloadable!] (restricted)
  8. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June. [Downloadable!] (restricted)
  9. Biais, Bruno & Bossaerts, Peter, 1993. "Asset Prices and Volume in a Beauty Contest," Working Papers 832, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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This page was last updated on 2009-11-18.

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