Equilibrium price with institutional investors and with naive traders
This paper uses a competitive equilibrium model to study how institutional investors influence the volatility and the informativeness of asset prices. Institutional investors are assumed to be "rational" informed traders, while individual investors are supposed to be "naive" informed traders, insofar as the former use the equilibrium price to extract information while the latter do not. The paper compares the informativeness and the volatility of the equilibrium price in an economy in which the informed traders are naive and in one where they are rational; the paper also investigates how the price characteristics react to changes in the parameters, in particular in the number of informed traders.
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- Grossman, Sanford J & Stiglitz, Joseph E, 1980.
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"Noise Trader Risk in Financial Markets,"
3725552, Harvard University Department of Economics.
- Arthur B. Kennickell & Martha Starr-McCluer & Annika E. Sunden, 1997. "Family finances in the U.S.: recent evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-24.
- Paul Milgrom & Nancy L.Stokey, 1979.
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377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Pagano, Marco, 1989.
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The Quarterly Journal of Economics,
MIT Press, vol. 104(2), pages 255-74, May.
- Sias, Richard W, 1997. "Price Pressure and the Role of Institutional Investors in Closed-End Funds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 211-29, Summer.
- Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
- Benjamin M. Friedman, 1995. "Economic Implications of Changing Share Ownership," NBER Working Papers 5141, National Bureau of Economic Research, Inc.
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