Volume, volatility, price, and profit when all traders are above average
Article Abstract:
People are overconfident. Overconfidence affects financial markets. How depends on who in the market is overconfident and on how information is distributed. This paper examines markets in which price-taking traders, a strategic-trading insider, and risk-averse marketmakers are overconfident. Overconfidence increases expected trading volume, increases market depth, and decreases the expected utility of overconfident traders. Its effect on volatility and price quality depend on who is overconfident. Overconfident traders can cause markets to underreact to the information of rational traders. Markets also underreact to abstract, statistical, and highly relevant information, and they overreact to salient, anecdotal, and less relevant information. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1998
User Contributions:
Comment about this article or add new information about this topic:
Disclosure when the market is unsure of information endowment of managers
Article Abstract:
A model is developed based on the notion that in the absence of information disclosure, outside investors can revise their probabilities that managers have received no private data. The investor's information acquisition may stimulate the release of data which had been been suppressed because it was perceived to be unfavorable. Earlier models are also extended to show the existence of a unique policy in partial disclosure. Comparative statics research analyses and their implications are also presented.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1988
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Purchase, use, and sale of home all can result in tax benefits. An investigation into fraud prevention and detection of small businesses in the United States: responsibilities of auditors, managers, and business owners
- Abstracts: Bid to nab the legal villain: Scottish lawyers and their accountants face a tough new accounts regime. Legal liabilities of accountants
- Abstracts: The quality option and timing option in futures contracts. Risk in banking and capital regulation. A theoretical analysis of real estate returns
- Abstracts: Stock market efficiency and economic efficiency: is there a connection? Implications of the discreteness of observed stock prices
- Abstracts: The domino effect and the supervision of the banking system. An analysis of mortgage contracting: prepayment penalties and the due-on-sale clause