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The Impact of Heterogeneous Signals on Stock Price Predictability in a Strategic Trade Model

Winter, Christoph. (2018) The Impact of Heterogeneous Signals on Stock Price Predictability in a Strategic Trade Model. WWZ Working Papers, 2018 (22). Basel.

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Official URL: https://edoc.unibas.ch/68038/

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Abstract

Generalizing the idea that price momentum can be explained by dierent levels of uncertainty inherent in the information structure, we implement signal-specic dierences in uncertainty in a Kyle type model of strategic trading. We derive the equilibrium in a single-auction setting as well as a two-trading-period model. We show that the two-period equilibrium supports price patterns like momentum and reversal/under- and over-reaction without relying on any additional behavioral assumptions. Furthermore, the two-period setting can be extended to a multiple- trading-period equilibrium model with very similar equilibrium conditions to the original sequential auction equilibrium proposed by Kyle (1985), while preserving the price pattern of the two-period model.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Finanzmanagement (Gantenbein)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Winter, Christoph
Item Type:Working Paper
Publisher:WWZ
Number of Pages:50
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2018/22
Last Modified:10 Jan 2019 08:20
Deposited On:10 Jan 2019 08:20

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