We are greatly indebted to the anonymous referee for the helpful commends and suggestions. This work has been supported by National Science Council, R.O.C., under Grant NSC99-2410-H-158-004. Correspondence: Ming-Chang Wang.
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Trade Timing, Price Volatility and Serial Correlation
Article first published online: 3 MAY 2011
DOI: 10.1111/j.1468-036X.2011.00614.x
© 2011 Blackwell Publishing Ltd
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European Financial Management
Early View (Online Version of Record published before inclusion in an issue)
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How to Cite
Wang, M.-C. and Zu, L.-P. (2011), Trade Timing, Price Volatility and Serial Correlation. European Financial Management. doi: 10.1111/j.1468-036X.2011.00614.x
Publication History
- Article first published online: 3 MAY 2011
- Abstract
- Article
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- Cited By
Keywords:
- asymmetric information;
- informed trading;
- price volatility;
- rational expectations model;
- serial correlation;
- trade timing
- G11;
- G12;
- G14
Abstract
This study sets up a multiple-period, competitive rational expectations model to facilitate an examination into how informed traders time their trading on private information so as to maximise their expected utility. We find that, in equilibrium, informed traders may elect to trade late on their information, a result which contradicts other competitive rational expectations models in which it is generally assumed that informed traders will trade immediately upon receiving private information. Our results imply that price volatility will increase and price changes may display positive serial correlation. This phenomenon helps to explain the excess volatility puzzle of asset prices and medium-term continuations (momentum).