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Strategic Use of Private Investor Information in Equity Markets

  • Peter O. Christensen
  • Gerald A. Feltham
Part of the Springer Series in Accounting Scholarship book series (KLAS, volume 1)

Abstract

In the GS (and HV) models examined in Chapter 11, the informed investors are assumed to act as price takers when they trade on their private information. The investors rationally anticipate the relation between the private information and the equilibrium price, but nonetheless they ignore the effect their trades will have on the information conveyed to uninformed investors through the resulting price. If there are many competing investors who become informed and their individual actions have a relatively small impact on the price, this is a reasonable assumption. Risk aversion plays a key role in these models as it determines how aggressively the informed investors react to their private information. In other settings there are only a few investors, such as insiders, who become informed. Even if they are risk neutral, they may well restrain their trades so as to partially “hide” their private information while still making a profit from its use in their trades.

Keywords

Private Information Initial Public Offering Equity Market Public Report Rational Investor 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2003

Authors and Affiliations

  • Peter O. Christensen
    • 1
  • Gerald A. Feltham
    • 2
  1. 1.University of Southern Denmark-OdenseDenmark
  2. 2.The University of British ColumbiaCanada

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