Strategic informed trades, diversification and expected returns
Caskey, Judson
Strategic informed trades, diversification and expected returns / Judson Caskey, John S. Hughes & Jun Liu . -- Páginas 1811 a la 1837
Reseña : We examine how strategic trade affects expected returns in a large economy. In our model, both a monopolist (strategic) informed trader and uninformed traders consider the impact of their demands on prices. In contrast to settings with price-taking traders, private information never eliminates a priced risk, and can lead to higher risk premiums. Also unlike settings with price-taking informed traders, risk premiums decrease in response to an increase in liquidity-motivated trades in diversified portfolios. These differing effects arise because a privately informed strategic trader conceals her trades by taking small positions relative to the magnitude of noise trades. Although prices partially reveal her information and reduce uncertainty, a concomitant decrease in her risk absorption dominates and leads to higher risk premiums. Similar to settings with price-taking traders, private information affects expected returns only via factor loadings and risk premiums on existing payoff risks—it introduces no new priced risks, and factor loadings (betas) explain all cross-sectional differences in expected returns..
Contabilidad--Publicaciones seriadas
Tasa de retorno--Publicaciones seriadas
Diversificación en la industria--Publicaciones seriadas
Hughes, John S. ; Liu, Jun ;
Strategic informed trades, diversification and expected returns / Judson Caskey, John S. Hughes & Jun Liu . -- Páginas 1811 a la 1837
Reseña : We examine how strategic trade affects expected returns in a large economy. In our model, both a monopolist (strategic) informed trader and uninformed traders consider the impact of their demands on prices. In contrast to settings with price-taking traders, private information never eliminates a priced risk, and can lead to higher risk premiums. Also unlike settings with price-taking informed traders, risk premiums decrease in response to an increase in liquidity-motivated trades in diversified portfolios. These differing effects arise because a privately informed strategic trader conceals her trades by taking small positions relative to the magnitude of noise trades. Although prices partially reveal her information and reduce uncertainty, a concomitant decrease in her risk absorption dominates and leads to higher risk premiums. Similar to settings with price-taking traders, private information affects expected returns only via factor loadings and risk premiums on existing payoff risks—it introduces no new priced risks, and factor loadings (betas) explain all cross-sectional differences in expected returns..
Contabilidad--Publicaciones seriadas
Tasa de retorno--Publicaciones seriadas
Diversificación en la industria--Publicaciones seriadas
Hughes, John S. ; Liu, Jun ;