The tradeoff between risk sharing and information production in financial markets

Journal of Economic Theory

Volumn 145, Issue 1, 2010, Pages 124-155

  Peress, Joel ^a  

^a INSEAD   (France)

Author keywords

Asymmetric information; Information choice; Kreps Porteus preferences; Learning; Non expected utility; Risk sharing; Shareholder base expansion

Indexed keywords

EID: 74149090813     PISSN: 00220531     EISSN: 10957235     Source Type: Journal    
DOI: 10.1016/j.jet.2008.03.009     Document Type: Article

References (80)

1. Acemoglu D., and Zilibotti F. Information accumulation in development. J. Econ. Growth 4 (1999) 5-38
2. Admati A. A noisy rational expectations equilibrium for multi-asset securities markets. Econometrica 53 3 (1985) 629-657
3. Aghion P., and Howitt P. A model of growth through creative destruction. Econometrica 60 2 (1992) 323-351
4. Allen F., and Gale D. Limited market participation and volatility of asset prices. Amer. Econ. Rev. 84 (1994) 933-955
5. Amihud Y., Mendelson H., and Uno J. Number of shareholders and stock prices: Evidence from Japan. J. Finance 54 3 (1999) 1169-1184
6. Arrow K. The demand for information and the distribution of income. Probab. Engrg. Inform. Sci. 1 (1987) 3-13
7. Back K., Cao H., and Willard G. Imperfect competition among informed traders. J. Finance 55 (2000) 2117-2155
8. Basak S., and Cuoco D. An equilibrium model with restricted stock market participation. Rev. Finan. Stud. 11 (1998) 309-341
9. U. Bhattacharya, N. Galpin, Is stock picking declining around the world? Working Paper, Indiana University Bloomington, 2005
10. Bernardo A., and Judd K. Asset market equilibrium with general tastes, returns, and informational asymmetries. J. Finan. Markets 3 (2000) 17-43
11. Black F. Noise. J. Finance 41 3 (1986) 529-544
12. Brown G., and Kapadia N. Firm-specific risk and equity market development. J. Finan. Econ. 84 2 (2007) 358-388
13. Brunnermeier M. Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding (2001), Oxford University Press
14. Calvo G., and Mendoza E. Rational contagion and the globalization of securities markets. J. Int. Econ. 51 (2000) 79-113
15. Campbell J., Grossman S., and Wang J. Trading volume and serial correlation in stock returns. Quart. J. Econ. 108 4 (1993) 905-939
16. Campbell J., Lettau M., Malkiel B., and Xu Y. Have individual stocks become more volatile? An empirical exploration of idiosyncratic risk. J. Finance 56 1 (2001) 1-43
17. Chen J., Hong H., Huang M., and Kubik J. Does fund size erode mutual fund performance? The role of liquidity and organization. Amer. Econ. Rev. 94 5 (2004) 1276-1302
18. Chen J., Hong H., and Stein J. The breadth of ownership and stock returns. J. Finan. Econ. 66 2-3 (2002) 171-205
19. Conroy S., Harris R., and Benet B. The effects of stock splits on bid-ask spreads. J. Finance 45 4 (1990) 1285-1296
20. Copeland T. Liquidity changes following stock splits. J. Finance 34 1 (1979) 115-141
21. Domowitz I., Glen J., and Madhavan A. International cross-listing and order flow migration: Evidence from an emerging market. J. Finance 53 6 (1998) 2001-2027
22. Dubofsky D. Volatility increases subsequent to NYSE and AMEX stock splits. J. Finance 46 1 (1991) 421-431
23. Epstein L., and Zin S. Substitution, risk aversion, and the temporal behavior of consumption and asset returns: A theoretical framework. Econometrica 57 (1989) 937-969
24. Foerster S., and Karolyi A. The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States. J. Finance 54 3 (1999) 981-1013
25. Gaspar J.M., and Massa M. Idiosyncratic volatility and product market competition. J. Bus. 79 (2006) 3125-3152
26. Grinblatt M., Masulis R., and Titman S. The valuation effects of stock splits and stock dividends. J. Finan. Econ. 13 4 (1984) 461-490
27. Grossman S.J. On the efficiency of competitive stock markets where trades have diverse information. J. Finance 31 2 (1976) 573-585
28. Grossman S.J., and Stiglitz J.E. On the impossibility of informationaly efficient markets. Amer. Econ. Rev. 70 (1980) 393-408
29. Grullon G., Kanatas G., and Weston J. Advertising, breadth of ownership and liquidity. Rev. Finan. Stud. 17 2 (2004) 439-461
30. Hansen L., Sargent T., and Tallarini T. Robust permanent income and pricing. Rev. Econ. Stud. 66 4 (October 1999) 873-907
31. Hansen L., and Sargent T. Discounted linear exponential quadratic Gaussian control. IEEE Trans. Automatic Control 40 (1995) 968-971
32. Hau H. Competitive entry and endogenous risk in the foreign exchange market. Rev. Finan. Stud. 11 4 (1998) 757-787
33. He H., and Wang J. Differential information and dynamic behavior of stock trading volume. Rev. Finan. Stud. 8 4 (1995) 919-972
34. Hellwig M. On the aggregation of information in competitive markets. J. Econ. Theory 22 3 (1980) 477-498
35. Herrera H. Sorting in risk-aversion and asset price volatility. J. Math. Econ. 41 4-5 (2005) 557-570
36. Hirshleifer D. Residual risk, trading costs, and commodity futures risk premia. Rev. Finan. Stud. 1 (1988) 173-193
37. Holden C., and Subrahmanyam A. Long-lived private information and imperfect competition. J. Finance 47 1 (1992) 247-270
38. Holmström B., and Tirole J. Market liquidity and performance monitoring. J. Polit. Economy 101 4 (1993) 678-709
39. Paul J. Irvine, Jeffrey E. Pontiff, Idiosyncratic return volatility, cash flows, and product market competition, Working Paper, 2005
40. Jayaraman N., Shastri K., and Tandon K. The impact of international cross listings on risk and return: The evidence from American depository receipts. J. Banking Finance 17 1 (1993) 91-103
41. Jones C. Growth and ideas. In: Aghion P., and Durlauf S. (Eds). Handbook of Economic Growth (2005), North-Holland Elsevier Publishers, Amsterdam
42. Kadlec G., and McConnell J. The effect of market segmentation and illiquidity on asset prices: Evidence from exchange listings. J. Finance 49 2 (1994) 611-636
43. Karolyi A. Why do companies list shares abroad?: A survey of the evidence and its managerial implications. Finan. Markets, Inst. Instruments 7 1 (1996) 1-60
44. Kreps D.M., and Porteus E. Temporal resolution of uncertainty and dynamic choice theory. Econometrica 46 (1978) 185-200
45. Kreps D.M., and Porteus E. Temporal von Neumann-Morgenstern and induced preferences. Econometrica 20 1 (1979) 81-109
46. Kyle A. Continuous auctions and insider trading. Econometrica 53 (1985) 1315-1335
47. Lakonishok J., and Lev B. Stock splits and stock dividends: Why, who, and when. J. Finance 42 4 (1987) 913-933
48. Lamoureux C., and Poon P. The market reaction to stock splits. J. Finance 42 5 (1987) 1347-1370
49. Lynch Koski J. Measurement effects and the variance of returns after stock splits and stock dividends. Rev. Finan. Stud. 11 1 (1998) 143-162
50. Malkiel B., and Xu Y. Investigating the behavior of idiosyncratic volatility. J. Bus. 76 (2003) 613-644
51. Merton R. A simple model of capital market equilibrium with incomplete information. J. Finance 42 (1987) 483-510
52. Miller E. Risk, uncertainty, and divergence of opinion. J. Finance 32 4 (1977) 1151-1168
53. Miller D. The market reaction to international cross-listings: Evidence from depositary receipts. J. Finan. Econ. 51 1 (1999) 103-123
54. Mukherji S., Kim Y., and Walker M. The effect of stock splits on the ownership structure of firms. J. Corp. Financ. 3 2 (1997) 167-188
55. Ohlson J., and Penman S. Volatility increases subsequent to stock splits: An empirical aberration. J. Finan. Econ. 14 2 (1985) 251-266
56. M. Pagano, Market size, the informational content of stock prices and risk, CEPR Working Paper 144, 1986
57. Peress J. Wealth, information acquisition and portfolio choice. Rev. Finan. Stud. 17 3 (2004) 879-914
58. Romer P. Increasing returns and long-run growth. J. Polit. Economy 94 5 (1986) 1002-1037
59. Romer P. Endogenous technological change. J. Polit. Economy 98 5 (1990) S71-S102
60. Schonfeld E., and Boyd J. Corporate advertising and stock prices-Is there an impact?. Public Relat. J. 33 (1977) 18-20
61. Schonfeld E., and Boyd J. The financial payoff in corporate advertising. J. Advertising Res. 22 (1982) 45-55
62. Schultz P. Stock splits, tick size, and sponsorship. J. Finance 55 1 (2000) 429-451
63. Shapiro A. The investor recognition hypothesis in a dynamic general equilibrium: Theory and evidence. Rev. Finan. Stud. 15 1 (2002) 97-141
64. Sheikh A. Stock splits, volatility increases, and implied volatilities. J. Finance 44 5 (1989) 1361-1372
65. Shleifer A., and Vishny R. A survey corporate governance. J. Finance 52 2 (1997) 737-783
66. Stein J. Informational externalities and welfare-reducing speculation. J. Polit. Economy 95 6 (1987) 1123-1145
67. S. Van Nieuwerburgh, L. Veldkamp, Information acquisition and portfolio under-diversification, Working Paper, NYU Stern, 2006
68. Van Nieuwerburgh S., and Veldkamp L. Learning asymmetries in real business cycles. J. Monet. Econ. 53 4 (2006)
69. Veldkamp L. Slow boom, sudden crash. J. Econ. Theory 124 2 (2005) 230-257
70. Veldkamp L. Information markets and the comovement of asset prices. Rev. Econ. Stud. 73 3 (2006) 823-845
71. Veldkamp L. Media frenzies in markets for financial information. Amer. Econ. Rev. 96 3 (2006)
72. Verrecchia R.E. Information acquisition in a noisy rational expectations economy. Econometrica 50 6 (1982) 1415-1430
73. A. Vissing-Jørgensen, Limited stock market participation, PhD thesis, Department of Economics, MIT, 1998
74. Wang J. A model of competitive stock trading volume. J. Polit. Economy (1994)
75. West K.D. Dividend innovations and stock price volatility. Econometrica 56 1 (1988) 37-61
76. Wei S., and Zhang C. Why did individual stocks become more volatile?. J. Bus. 79 (2006) 259-292
77. Weil P. Nonexpected utility in macroeconomics. Quart. J. Econ. 105 1 (1990) 29-42
78. Weil P. Precautionary savings and the permanent income hypothesis. Rev. Econ. Stud. 60 2 (1993) 367-383
79. Wilson R. Informational economies of scale. Bell J. Econ. 6 (1975) 184-195
80. Zeira J. Information cycles. Rev. Econ. Stud. 61 (1994) 31-44