Private Information and Trade Timing
AbstractThis paper investigates the Bayesian decision-theoretic foundations of the Wall Street adage that `timing is everything'. One might think that a `small' risk-neutral trader wishes to act immediately upon any private information he possesses. I begin with a counterintuitive nding that trade timing doesn't matter for an Arrow security, as one's expected return per dollar invested is a martingale. This timing irrelevance discovery motivates an analysis of general compound securities. While timing there is ambiguous, I nd that natural monotone likelihood ratio assumptions on both private and public information restore the intuition that one should trade with all due dispatch.
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Bibliographic InfoPaper provided by Michigan - Center for Research on Economic & Social Theory in its series Papers with number 99-07.
Length: 10 pages
Date of creation: 1999
Date of revision:
Contact details of provider:
Postal: UNIVERSITY OF MICHIGAN, DEPARTMENT OF ECONOMICS CENTER FOR RESEARCH ON ECONOMIC AND SOCIAL THEORY, ANN ARBOR MICHIGAN U.S.A.
DECISION MAKING ; FINANCIAL MARKET ; INFORMATION;
Other versions of this item:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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.:
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- Park, A. & Sgroi, D., 2009.
"Herding, Contrarianism and Delay in Financial Market Trading,"
Cambridge Working Papers in Economics
0941, Faculty of Economics, University of Cambridge.
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