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Informed Trading When Information Becomes Stale
Author(s) -
Bernhardt Dan,
Miao Jianjun
Publication year - 2004
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2004.00635.x
Subject(s) - speculation , private information retrieval , asset (computer security) , inside information , value (mathematics) , information quality , quality (philosophy) , value of information , business , moment (physics) , computer science , microeconomics , financial economics , economics , actuarial science , information system , mathematical economics , computer security , finance , engineering , philosophy , epistemology , machine learning , electrical engineering , physics , classical mechanics
This paper characterizes informed trade when speculators can acquire distinct signals of varying quality about an asset's value at different dates. The most reasonable characterization of private information about stocks is that while information is long‐lived, new information will arrive over time, information that may be acquired by others. Hence, while a speculator may know more than others at a moment, in the future, his information will become stale, but not valueless. In an environment that allows for arbitrary correlations among signals, we characterize equilibrium outcomes including trading, prices, and profits. We provide explicit numerical characterizations for different informational environments.