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Decision Rules and their Influence on Asset Prices

Trifan, Emanuela (2004):
Decision Rules and their Influence on Asset Prices.
Darmstadt, In: Darmstadt Discussion Papers in Economics, [Online-Edition: http://econstor.eu/bitstream/10419/22522/1/ddpie_139.pdf],
[Report]

Abstract

This paper develops a market microstructure model with asymmetric information in order to quantify the influence which practical decision rules have on asset process. The users of practical decision rules have incomplete information at their disposal and trade in a market with both fully informed and uninformed investors, as well as with a competitive market maker. The users of practical decision rules affect the periodical ask and bid prices in two ways: by means of the precision of their information and through their share in the totality of investors, respectively. The resulting bid-ask spread is positive and proportional to the c.p. variation of these two influencing factors and is attributable to the adverse selection costs.

Item Type: Report
Erschienen: 2004
Creators: Trifan, Emanuela
Title: Decision Rules and their Influence on Asset Prices
Language: English
Abstract:

This paper develops a market microstructure model with asymmetric information in order to quantify the influence which practical decision rules have on asset process. The users of practical decision rules have incomplete information at their disposal and trade in a market with both fully informed and uninformed investors, as well as with a competitive market maker. The users of practical decision rules affect the periodical ask and bid prices in two ways: by means of the precision of their information and through their share in the totality of investors, respectively. The resulting bid-ask spread is positive and proportional to the c.p. variation of these two influencing factors and is attributable to the adverse selection costs.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 139
Place of Publication: Darmstadt
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
Date Deposited: 23 Oct 2009 13:40
Official URL: http://econstor.eu/bitstream/10419/22522/1/ddpie_139.pdf
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