Abstract

http://ssrn.com/abstract=1105064
 
 

References (45)



 
 

Citations (5)



 


 



Advance Information and Asset Prices


Rui A. Albuquerque


Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jianjun Miao


Boston University - Department of Economics

September 25, 2012


Abstract:     
This paper provides a dynamic rational expectations equilibrium model in which investors have heterogeneous information and investment opportunities. Informed investors privately receive advance information that is useful for predicting future earnings, but is unrelated to current earnings. This information is immediately partially incorporated into stock prices. In response to good advance information, informed investors act as trend chasers and raise investments in both stocks and nontraded assets, leading them to bear more aggregate risk. This raises the expected risk premium and generates short-run momentum. Uninformed investors act as contrarians and sell stocks. When the advance information materializes in the future, excess returns fall, generating long-run reversals.

Number of Pages in PDF File: 59

Keywords: advance information, momentum and reversal effects, rational expectations equilibrium

JEL Classification: G11, G12, G14

working papers series


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Date posted: March 17, 2008 ; Last revised: September 25, 2012

Suggested Citation

Albuquerque, Rui A. and Miao, Jianjun, Advance Information and Asset Prices (September 25, 2012). Available at SSRN: http://ssrn.com/abstract=1105064 or http://dx.doi.org/10.2139/ssrn.1105064

Contact Information

Rui A. Albuquerque (Contact Author)
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
HOME PAGE: http://people.bu.edu/ralbuque/
Católica-Lisbon School of Business and Economics ( email )
Caminho da Palma de Cima
Lisbon, 1649-023
Portugal
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Jianjun Miao
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
617-353-6675 (Phone)
HOME PAGE: http://people.bu.edu/miaoj
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