The pricing effects of ambiguous private information

Condie, Scott; Ganguli, Jayant V.

doi:10.1016/j.jet.2017.06.005

Cited by 24 publications

(3 citation statements)

References 66 publications

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“…Several recent models have shown that ambiguity aversion may lead to forms of portfolio inertia in that households may wish to keep their risk exposure constant over time even upon observing shocks, say, to the distribution of expected returns. Portfolio inertia can have important consequences also for the functioning of asset markets, as it impacts the amount of information revealed in prices and ultimately their level and volatility (Condie and Ganguli (2012)).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Ambiguity Preferences and Portfolio Choices: Evidence from the Field

Bianchi

Tallon

2019

Management Science

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We match administrative panel data on portfolio choices with survey data on preferences over ambiguity. We show that ambiguity averse investors bear more risk, due to a lack of diversi…cation. In particular, they exhibit a form of home bias that leads to higher exposure to the domestic relative to the international stock market. While more sensitive to market factors, their returns are on average higher, suggesting that ambiguity averse investors need not be driven out of the market for risky assets. We also show that these investors rebalance their portfolio more actively and in a contrarian direction relative to past market trends, which allows them to keep their risk exposure relatively constant over time. We discuss these …ndings in relation to the theoretical literature on portfolio choice under ambiguity.We are grateful to Han Bleichrodt (editor), an associate editor and two referees for very constructive comments. We also thank

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Section: Theoretical Backgroundmentioning

confidence: 99%

Ambiguity Preferences and Portfolio Choices: Evidence from the Field

Bianchi

Tallon

2019

Management Science

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“…6 Our work is also related to a large literature on the informational efficiency of prices in the presence of asymmetric information. For instance, prices do not fully reveal private information in equilibrium (i) if it is costly to acquire information (Grossman (1976), Grossman and Stiglitz (1976)), (ii) if there are noise traders (Grossman and Stiglitz (1980)), (iii) if informed investors anticipate how their trades will impact prices (Kyle (1985), Back, Cao, and Willard (2000)), and (iv) if there is ambiguity (Caskey (2009), Condie and Ganguli (2017)). What is striking in this paper is that a costless informative public signal is not always incorporated into the price (i.e., the price is not a sufficient statistic for the signal) when an investor is averse to ambiguity in the workhorse learning models in finance.…”

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confidence: 99%

Information Inertia

Illeditsch¹,

Ganguli²,

Condie

2020

The Journal of Finance

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We study how information about an asset affects optimal portfolios and equilibrium asset prices when investors are not sure about the model that predicts future asset values and thus treat the information as ambiguous. We show that this ambiguity leads to optimal portfolios that are insensitive to news even though there are no information processing costs or other market frictions. In equilibrium, we show that stock prices may not react to public information that is worse than expected and this mispricing of bad news leads to profitable trading strategies based on public information.

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“…The disagreement creates a dispersed bid and offer price among investors and drives high trading price volatility (Ma, Wang, Cheng, & Hu, 2017). Disagreement among investor come from different quality of private information among investors and the quality of their interpretation of public information (Condie & Ganguli, 2017). If there is a dominant player in the market, for example, dealer order flows are very high, but on the other hand, customer order flows are trivial, the disagreement would have low price impact.…”

Section: Buddi Wibowomentioning

confidence: 99%

Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market

Wibowo

2019

Jurnal Keuangan Dan Perbankan

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Relation of private information and yield volatility in the relatively low liquid market such as Indonesia government bond market is one of the recent important research topics in finance. Because private information accumulation mastery affects interaction pattern between dealers and their customers, it is urgent to identify this price mechanism in government bond market, especially in a low liquid market which small trading volume may create serious yield volatility. If there is a substantial disagreement on bond fair value because of distinct private information quality between each those groups of investors success to accumulate it, bond price will fluctuate wildly. This paper study the dealer and customer order flow interaction to identify which side that have a greater impact on yield volatility. The results show that from the two layers of order flow, disagreement between dealers and customers are slightly in a short-term and medium-term bond, so their volatility is relatively low. But for a long-term bond, disagreement is substantial and creates high yield volatility. Different trading platform and strategy between dealer and customer play an important role in creating high yield fluctuations. How to Cite: Wibowo, B. (2019). Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market.

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The pricing effects of ambiguous private information

Cited by 24 publications

References 66 publications

Ambiguity Preferences and Portfolio Choices: Evidence from the Field

Ambiguity Preferences and Portfolio Choices: Evidence from the Field

Information Inertia

Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market

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