American Economic Review Vol. 90 No. 4 2000
Private Information and Trade Timing
Abstract
This paper investigates the Bayesian decision-theoretic foundations of the Wall Street adage that `timing is everything'. One might think that a `small' risk-neutral trader wishes to act immediately upon any private information he possesses. I begin with a counterintuitive nding that trade timing doesn't matter for an Arrow security, as one's expected return per dollar invested is a martingale. This timing irrelevance discovery motivates an analysis of general compound securities. While timing there is ambiguous, I nd that natural monotone likelihood ratio assumptions on both private and public information restore the intuition that one should trade with all due dispatch.(This abstract was borrowed from another version of this item.)
- DOI
- 10.1257/aer.90.4.1012
- Volume
- 90
- Issue
- 4
- Pages
- 1012-1018
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex