Private Information and Trade Timing

Posted: 23 Jul 1997

See all articles by Lones Smith

Lones Smith

University of Wisconsin at Madison - Department of Economics

Date Written: Undated


This paper investigates the Bayesian decision-theoretic foundations of the Wall Street adage that timing is everything. One might think that a small risk-neutral trader wishes to act immediately upon any private information he possesses. By focusing on the behavior of returns rather than prices, and assuming (as per usual) that private and public information is conditionally independent, I challenge this conventional wisdom. I begin with a counterintuitive finding that trade timing doesn't matter for an Arrow security, as one?s expected return per dollar invested is a martingale. This timing irrelevance discovery motivates an analysis of general compound securities, where timing is in general moot. I find that natural monotone likelihood ratio assumptions on both private and public information restore the conventional wisdom that one should trade without haste.

JEL Classification: G12, G14, D81

Suggested Citation

Smith, Lones, Private Information and Trade Timing (Undated). Available at SSRN:

Lones Smith (Contact Author)

University of Wisconsin at Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
United States
608-263-3871 (Phone)
608-262-2033 (Fax)


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