This paper covers asymmetric information in financial markets from a micro perspective. Particularly, we aim to extend the asset pricing framework introduced by Guasoni (2006), which models price dynamics with both a martingale component, described by permanent shocks, and a stationary component, given by temporary shocks. First, we derive a generalization of this asset pricing model using two Ornstein-Uhlenbeck processes, then three and in the last case n Brownian motions, as well as include an Ornstein-Uhlenbeck process as the (n+1)th element. We find non-Markovian dynamics for the uniformed agents, which questions the validity of the efficient market hypothesis. Moreover, we contrast the positions of informed and uninformed agents. Thereby, the filtration for informed agents is larger and initially specified, whereas the filtration for uniformed agents is smaller and obtained from the Hitsuda representation (1968). For both agents, our study yields similar results as the findings of Guasoni, for the logarithmic utility maximization problem.

Asymmetric information in fads models: some extensions

SCOLOZZI, Donato;TOLOMEO, ANTONELLA;ROMANO, LUIGI
2013-01-01

Abstract

This paper covers asymmetric information in financial markets from a micro perspective. Particularly, we aim to extend the asset pricing framework introduced by Guasoni (2006), which models price dynamics with both a martingale component, described by permanent shocks, and a stationary component, given by temporary shocks. First, we derive a generalization of this asset pricing model using two Ornstein-Uhlenbeck processes, then three and in the last case n Brownian motions, as well as include an Ornstein-Uhlenbeck process as the (n+1)th element. We find non-Markovian dynamics for the uniformed agents, which questions the validity of the efficient market hypothesis. Moreover, we contrast the positions of informed and uninformed agents. Thereby, the filtration for informed agents is larger and initially specified, whereas the filtration for uniformed agents is smaller and obtained from the Hitsuda representation (1968). For both agents, our study yields similar results as the findings of Guasoni, for the logarithmic utility maximization problem.
2013
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11587/390666
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