An Empirical Investigation of Trading on Asymmetric Information and Heterogeneous Prior Beliefs

Journal of Empirical Finance

Posted: 19 Oct 2000

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Dennis Y. Chung

Simon Fraser University

Abstract

The purpose of this study is to analyze inter-temporal trading patterns attributable to informed trading, and distinguish between trading due to asymmetric information and trading due to heterogeneous prior beliefs. Although liquidity and asymmetric information motives for trading are well established in the literature, there is much less consensus about the role played by heterogeneous beliefs. If trading on heterogeneous prior beliefs describes actual order flows, then this motive could be a source of considerable trading volume and may be responsible for previously-documented trading patterns. We apply the econometric procedures of Easley, Kiefer, O'Hara, Paperman (1996 Journal of Finance 51, 1405-1436) to the testable hypotheses of Wang's (1998 Journal of Financial Markets 1, 321-352) informed trader model. The empirical findings confirm the existence of trading on heterogeneous prior beliefs and generally support the inter-temporal patterns proposed by Wang (1998).

Note: This is a description of the paper and not the actual abstract.

JEL Classification: G10, G14

Suggested Citation

Brockman, Paul and Chung, Dennis Y., An Empirical Investigation of Trading on Asymmetric Information and Heterogeneous Prior Beliefs. Journal of Empirical Finance. Available at SSRN: https://ssrn.com/abstract=241912

Paul Brockman (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Dennis Y. Chung

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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