Author: Li-Wei ChenPublisher:
ISBN:
Category :
Languages : en
Pages : 63
Book Description
Interest in the efficiency of markets has led to much empirical testing. An enormous amount of work has been done in the field of finance investigating the efficiency of various financial markets. Downstair market (such as NYSE and TSE) rely on market makers, floor traders, and limit order to provide liquidity on demand. Yet despite the importance of informed trader as a source of liquidity, relatively little is know about how prices in downstairs market are determined under uncertainty and the effects of information leakage facilitated by transaction in the stock market.This article develops a model of the stock market where quantity demanded and prices are determined endogenously to increase our understanding of how information is leaked out. We find that information leakage is related to the precision and value observed of that information.This study finds that privately informed traders able to outperform the market even strong efficient one. This finding tends to refute the strong form of the efficient market hypothesis.Investors are rational ones pursuing their maximum utility. In an economy under certainty, investors can acquire and utilize any information including private and public ones, to estimate the risk, predict the true value of securities, carry on the investment, and thus influence the security price.Once the signal observed and its accuracy were improved, the investors adopt more active trading behavior, thus the quantity demanded for risky assets rise, and lead to the security price increase, as for and investor's utility. Second, we find that both risk adverse coefficient and the liquidity of security market are irrelevant to security price.Perfect information disclosure are not necessarily the key successful factors of the development of security market. The more independent information that investors have, not necessarily result more informative of price.