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Studies on Information Asymmetry, Price Manipulation and Investor Performances *
Author(s) -
Yoo Jin
Publication year - 2008
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 1226-1165
DOI - 10.1111/j.2041-6156.2008.tb00004.x
Subject(s) - cheating , distrust , information asymmetry , equity (law) , business , institutional investor , reputation , economics , financial economics , finance , microeconomics , corporate governance , psychology , law , social psychology , political science , psychotherapist
In this paper, we examine optimal investment strategies of informed traders in an equity market, where well informed and not so well informed traders as well as noise traders coexist. Naturally, less informed traders follow more informed counterparts because of informational advantage. On the other hand, more informed investors can take advantage of less informed investors' trust by manipulating prices. Often, by inflating or deflating the equity prices, more informed traders make greater profits than less informed traders do. Over time, less informed traders become aware of the others' strategy, thereby a long‐term equilibrium is to be attained, in which the more informed mixes his sincere and cheating strategy, and the less informed mixes his trust and distrust strategy. This model can be especially useful in understanding emerging markets, where foreign investors, local institutions, and local individuals are often characterized as more informed, less informed, and noise traders, respectively.