Volume, volatility, price, and profit when all traders are above average

Article Abstract:

People are overconfident. Overconfidence affects financial markets. How depends on who in the market is overconfident and on how information is distributed. This paper examines markets in which price-taking traders, a strategic-trading insider, and risk-averse marketmakers are overconfident. Overconfidence increases expected trading volume, increases market depth, and decreases the expected utility of overconfident traders. Its effect on volatility and price quality depend on who is overconfident. Overconfident traders can cause markets to underreact to the information of rational traders. Markets also underreact to abstract, statistical, and highly relevant information, and they overreact to salient, anecdotal, and less relevant information. (Reprinted by permission of the publisher.)

Security brokers and dealers, Securities Brokerage, Securities Trading, Research, Securities industry, Financial markets, Investors, Confidence

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Disclosure when the market is unsure of information endowment of managers

Article Abstract:

A model is developed based on the notion that in the absence of information disclosure, outside investors can revise their probabilities that managers have received no private data. The investor's information acquisition may stimulate the release of data which had been been suppressed because it was perceived to be unfavorable. Earlier models are also extended to show the existence of a unique policy in partial disclosure. Comparative statics research analyses and their implications are also presented.

Analysis, Disclosure (Securities law), Insider trading in securities, Insider trading (Securities), Disclosure statements (Accounting)

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