The Effects of Public Information with Asymmetrically Informed Short-Horizon Investors

44 Pages Posted: 20 Jun 2012 Last revised: 27 Feb 2014

See all articles by Qi Chen

Qi Chen

Duke University - Fuqua School of Business

Zeqiong Huang

Yale School of Management

Yun Zhang

George Washington University

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2014

Abstract

This paper analyzes the effects of public information in a perfect competition trading model populated by asymmetrically informed short-horizon investors with different levels of private information precision. We first show that information asymmetry reduces the amount of private information revealed by price in equilibrium (i.e., price informativeness) and can lead to multiple linear equilibria. We then demonstrate that the presence of both information asymmetry and short horizons provides a channel through which public information ináuences price informativeness and equilibrium uniqueness. We identify conditions under which public information increases or decreases price informativeness, and when multiple equilibria may arise. Our analysis shows that public information not only directly endows prices with more (public) information, it can also have an important indirect effect on the degree to which prices reveal private information.

Suggested Citation

Chen, Qi and Huang, Zeqiong and Zhang, Yun, The Effects of Public Information with Asymmetrically Informed Short-Horizon Investors (February 26, 2014). Available at SSRN: https://ssrn.com/abstract=1944328 or http://dx.doi.org/10.2139/ssrn.1944328

Qi Chen

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 660-7753 (Phone)

Zeqiong Huang

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yun Zhang (Contact Author)

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

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