Differential information and excessive volatility in financial markets
It is analysed whether risk averse agents possessing different information have an incentive to trade in a zero-sum market. The key to generate trading in a zero-sum speculative market is whether expectations are »homogenized» through the trading process. If not, trading will take place and all agents expect to be able to exploit private information not fully revealed by market prices to make a speculative profit. The existence of a rational expectations equilibrium with heterogenous expectations is proven to exist, and shown to imply excessive volatility ofprices and trading volumes.
Volume (Year): 5 (1992)
Issue (Month): 1 (Spring)
|Contact details of provider:|| Web page: http://www.taloustieteellinenyhdistys.fi|
More information through EDIRC
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.:
- 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.
- Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-53, May.
- Futia, Carl A, 1981. "Rational Expectations in Stationary Linear Models," Econometrica, Econometric Society, vol. 49(1), pages 171-92, January.
- Friedman, Daniel & Aoki, Masanao, 1986. "Asset price bubbles from poorly aggregated information : A parametric example," Economics Letters, Elsevier, vol. 21(1), pages 49-52.
- Black, Jane & Tonks, Ian, 1990. "Asset Price Variability under Asymmetric Information," Economic Journal, Royal Economic Society, vol. 100(400), pages 67-77, Supplemen.
- Bray, Margaret, 1985. "Rational Expectations, Information and Asset Markets: An Introduction," Oxford Economic Papers, Oxford University Press, vol. 37(2), pages 161-95, June.
- J. Hirshleifer, 1975.
"Speculation and Equilibrium: Information, Risk, and Markets,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 89(4), pages 519-542.
- Jack Hirshleifer, 1973. "Speculation and Equilibrium:Information,Risk,and Markets," UCLA Economics Working Papers 037, UCLA Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:5:y:1992:i:1:p:3-11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary)
If references are entirely missing, you can add them using this form.