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Speculative Dynamics

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Author Info

  • Peter Seiler

    (Honeywell Corporation)

  • Bart Taub

    (University of Illinois)

  • Dan Bernhardt

    (University of Illinois)

Abstract

We then characterize analytically and numerically how the characteristics of private information—its quantity, persistence and correlation, and division among speculators—affect trading profits, pricing and trading strategies. In particular, we derive how speculators trade on new information versus old, and on private signals versus prices. We show via a frequency-domain argument that trading strategies emphasize new information versus old.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 171.

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Date of creation: 2008
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Handle: RePEc:red:sed008:171

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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References

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  1. Foster, F. Douglas & Viswanathan, S., 1994. "Strategic Trading with Asymmetrically Informed Traders and Long-Lived Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(04), pages 499-518, December.
  2. Kerry Back & C. Henry Cao & Gregory A. Willard, 2000. "Imperfect Competition among Informed Traders," Journal of Finance, American Finance Association, vol. 55(5), pages 2117-2155, October.
  3. Kenneth Kasa, 2000. "Forecasting the Forecasts of Others in the Frequency Domain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 726-756, October.
  4. Ball, J. A. & Taub, B., 1991. "Factoring spectral matrices in linear-quadratic models," Economics Letters, Elsevier, vol. 35(1), pages 39-44, January.
  5. Taub, B., 1997. "Optimal policy in a model of endogenous fluctuations and assets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1669-1697, August.
  6. Wang, Jiang, 1993. "A Model of Intertemporal Asset Prices under Asymmetric Information," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 249-82, April.
  7. Minh Chau & Dimitri Vayanos, 2008. "Strong-Form Efficiency with Monopolistic Insiders," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2275-2306, September.
  8. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  9. Dan Bernhardt & Jianjun Miao, 2004. "Informed Trading When Information Becomes Stale," Journal of Finance, American Finance Association, vol. 59(1), pages 339-390, 02.
  10. Hua He and Jiang Wang., 1993. "Differential Information and Dynamic Behavior of Stock Trading Volume," Research Program in Finance Working Papers RPF-228, University of California at Berkeley.
  11. Back, Kerry, 1992. "Insider Trading in Continuous Time," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
  12. Back, Kerry & Pedersen, Hal, 1998. "Long-lived information and intraday patterns," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 385-402, September.
  13. Whiteman, Charles H., 1985. "Spectral utility, wiener-hopf techniques, and rational expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 9(2), pages 225-240, October.
  14. Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-68, February.
  15. Foster, F Douglas & Viswanathan, S, 1996. " Strategic Trading When Agents Forecast the Forecasts of Others," Journal of Finance, American Finance Association, vol. 51(4), pages 1437-78, September.
  16. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  17. Joseph G. Pearlman & Thomas J. Sargent, 2005. "Knowing the Forecasts of Others," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 480-497, April.
  18. Taub, Bart, 1986. "The tradeoff between social insurance and aggregate fluctuations," Information Economics and Policy, Elsevier, vol. 2(4), pages 259-276, December.
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Cited by:
  1. Makarov, Igor & Rytchkov, Oleg, 2012. "Forecasting the forecasts of others: Implications for asset pricing," Journal of Economic Theory, Elsevier, vol. 147(3), pages 941-966.

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