IDEAS home Printed from https://ideas.repec.org/p/cdl/anderf/qt37t357fc.html
   My bibliography  Save this paper

Volume and Price Formation in an Asset Trading Model with Asymmetric Information

Author

Listed:
  • Bernardo, Antonio
  • Judd, Kenneth L.

Abstract

This paper examines how private information affects trading volume, the information content of trading volume data, and if there are any relations between trading volume and price changes which can be explained by informational differences. We develop a model with two trading periods in which asymmetrically informed agents learn the trading volume of the first round of trading prior to trading in the second round. We also develop a general method for computing equilibria in such a model assuming only smooth, concave utility functions, and asset return distributions and signals with smooth densities. The model prices (i) a positive relation between trading volume and the absolute value of price changes; (ii) a positive relation between trading volume and subsequent stock price volatility; and (iii) that positive price moments on high trading volume lead, on average, to positive price movements.

Suggested Citation

  • Bernardo, Antonio & Judd, Kenneth L., 1996. "Volume and Price Formation in an Asset Trading Model with Asymmetric Information," University of California at Los Angeles, Anderson Graduate School of Management qt37t357fc, Anderson Graduate School of Management, UCLA.
    • Handle: RePEc:cdl:anderf:qt37t357fc
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/37t357fc.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kurz, Mordecai, 2008. "Beauty contests under private information and diverse beliefs: How different?," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 762-784, July.
    2. Luo, Dan & Mao, Yipeng, 2021. "Fundamental volatility and informative trading volume in a rational expectations equilibrium," Economic Modelling, Elsevier, vol. 105(C).
    3. Mordecai Kurz, 2007. "Rational Diverse Beliefs and Economic Volatility," Discussion Papers 06-045, Stanford Institute for Economic Policy Research.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:anderf:qt37t357fc. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/aguclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.