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An empirical study on the risk premium caused by differences in the dispersion of information among investors

Author

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  • Jun Sakamoto

    (Graduate School of Economics, Osaka University)

Abstract

Easley and O'HARA (2004) show that in the case that, while public information on firm fs returns is available to uninformed investors, informed investors are able to know not only public but also private information on firm fs returns, the premium caused by differences in the dispersion of information among investors exists. They obtain an implication that the increase in the ratio of private information magnifies the premium. The purpose of this paper is to examine whether or not the premium exists in the Japanese stock market. This paper shows that the higher the market uncertainty is, the larger the premium becomes. We analyze two implications using Japanese data from July, 2001 to December, 2013. As a result, whereas the premium does not exist in the case of the low market uncertainty, we observe the premium when the market uncertainty is high. This evidence is compatible with the second implication.

Suggested Citation

  • Jun Sakamoto, 2017. "An empirical study on the risk premium caused by differences in the dispersion of information among investors," Discussion Papers in Economics and Business 17-11, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1711
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    More about this item

    Keywords

    Visa; Information asymmetry among investors; Disclosure; Fama-French 3factor model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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