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On the Irrelevance of Trade Timing

Author

Listed:
  • Smith, L.

Abstract

Given standard, transparent assumptions, this paper questions the Wall Street adage that 'timing is everything'. I show that for an Arrow security, a 'small' risk-neutral trader with private information that is conditionally independent of the public information is exactly indifferent about the timing of his trade: His expected return per dollar invested is a martingale. This is true despite the fact that he expects the asset price itself to rise given favorable information and fall given unfavorable information.

Suggested Citation

  • Smith, L., 1996. "On the Irrelevance of Trade Timing," Working papers 96-6, Massachusetts Institute of Technology (MIT), Department of Economics.
  • Handle: RePEc:mit:worpap:96-6
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    More about this item

    Keywords

    TRADE; INFORMATION; STOCK MARKET; FINANCIAL MARKET; SHAREHOLDERS;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other

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