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Private Information and Trade Timing

Author

Listed:
  • Smith, L.

Abstract

This paper investigates the Bayesian decision-theoretic foundations of the Wall Street adage that `timing is everything'. One might think that a `small' risk-neutral trader wishes to act immediately upon any private information he possesses. I begin with a counterintuitive nding that trade timing doesn't matter for an Arrow security, as one's expected return per dollar invested is a martingale. This timing irrelevance discovery motivates an analysis of general compound securities. While timing there is ambiguous, I nd that natural monotone likelihood ratio assumptions on both private and public information restore the intuition that one should trade with all due dispatch.

Suggested Citation

  • Smith, L., 1999. "Private Information and Trade Timing," Papers 99-07, Michigan - Center for Research on Economic & Social Theory.
    • Handle: RePEc:fth:michet:99-07
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    Cited by:

    1. is not listed on IDEAS
    2. Park, Andreas & Sgroi, Daniel, "undated". "Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing," Economic Research Papers 269879, University of Warwick - Department of Economics.
    3. Kendall, Chad, 2018. "The time cost of information in financial markets," Journal of Economic Theory, Elsevier, vol. 176(C), pages 118-157.
    4. Andreas Park, 2008. "Bid-Ask Spreads and Volume:The Role of Trade Timing," Working Papers tecipa-309, University of Toronto, Department of Economics.
    5. Malinova, Katya & Park, Andreas, 2014. "The impact of competition and information on intraday trading," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 55-71.
    6. Katya Malinova & Andreas Park, 2009. "Intraday Trading Patterns: The Role of Timing," Working Papers tecipa-365, University of Toronto, Department of Economics.
    7. Park, Andreas & Sgroi, Daniel, 2012. "Herding, contrarianism and delay in financial market trading," European Economic Review, Elsevier, vol. 56(6), pages 1020-1037.

    More about this item

    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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