Differential Information and Dynamic Behavior of Stock Trading Volume, Issue 5010
This paper develops a multi-period rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock. Investors trade competitively in the stock market based on their private information and the information revealed by the market-clearing prices, as well as other public news. We examine how trading volume is related to the information flow in the market and how investors' trading reveals their private information.
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announcement date Asymmetric Information Bellman equation coefficients common noise component conditional expectations Corollary current model decrease defined differential information economy equation equilibrium price function excess return existing private information exogenous information expectation of 77 figure plots first-order expectations following values follows a Gaussian Gaussian process Grossman Grundy and McNichols high volume homogeneous information increases infinite regress problem information flow information set intensity of investors investors receive investors speculative Kyle Law of Large Lemma linear equilibrium linear function liquidity traders Market liquidity market-clearing McNichols 1989 non-informational trading normal distributions optimal stock demand optimal stock holding paper parameter values parameters are set pe,t price changes price volatility private signals proof public announcement public information Rational Expectations risk aversion risk dominates speculative positions stochastic process supply shock terminal date Theorem trading dates trading horizon trading strategies true value value of 77 variables volume and price volume of informational volume pattern Wang