An Equilibrium Model of Asset Trading with Sequential Information Arrival


  • Without implicating them, we would like to thank Chris Barry, Thomas Copeland, Steve Magee, Paul Newman, and A. J. Senchack. This paper was written while the first two authors were students at the University of Texas at Austin.


In an effort to better understand the dynamic market price adjustment process, this paper develops a model which describes the impact of new information on a financial market. The primary emphasis is on the price change-volume relationship in the presence of a margin requirement. We find that the margin requirement significantly affects the relation of price change to volume. Furthermore, this relationship is shown to be affected by the number of investors in the market, the degree of information dissemination, differences in interpretation of information and the implicit cost of the margin requirement.