Public Information and Heuristic Trade

48 Pages Posted: 13 Sep 1998

See all articles by Paul E. Fischer

Paul E. Fischer

University of Pennsylvania - Accounting Department

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Date Written: September 1, 1998

Abstract

We characterize the steady-state equilibrium in which informed traders who exhibit heuristic (i.e., representativeness, as opposed to Bayesian) and Bayesian behaviors achieve the same expected utility. Then, we show how the endogenous, steady-state proportion of heuristic traders is affected by the quality of public information and other exogenous features of our model. Finally, we discuss how the presence of heuristic traders potentially alters the link between improved public disclosure and: market liquidity, the variance in the change in price, and market efficiency.

JEL Classification: M41, G14, G19

Suggested Citation

Fischer, Paul E. and Verrecchia, Robert E., Public Information and Heuristic Trade (September 1, 1998). Available at SSRN: https://ssrn.com/abstract=124488 or http://dx.doi.org/10.2139/ssrn.124488

Paul E. Fischer (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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