Cross-asset speculation in stock markets

Bernhardt, D. and Taub, B. (2008) Cross-asset speculation in stock markets. Journal of Finance, 63(5), pp. 2385-2427. (doi: 10.1111/j.1540-6261.2008.01400.x)

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In practice, heterogeneously informed speculators combine private information about multiple stocks with information in prices, taking into account how their trades influence the inferences of other speculators via prices. We show how this speculation causes prices to be more correlated than asset fundamentals, raising price volatility. The covariance structure of asset fundamentals drives that of prices, while the covariance structure of liquidity trade drives that of order flows. We characterize how speculator profits vary with the distributions of information and liquidity trade across assets and speculators, and relate the cross-asset factor structure of order flows to that of returns.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Taub, Professor Bart
Authors: Bernhardt, D., and Taub, B.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Finance
ISSN (Online):1540-6261

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