Equilibrium Asset Pricing and Portfolio Choice Under Asymmetric Information
By Bruno Biais, Peter Bossaerts, Chester Spatt. 2010
134 citations recorded by the source corpus.
We analyze theoretically and empirically the implications of information asymmetry for equilibrium asset pricing and portfolio choice. In our partially revealing dynamic rational expectations equilibrium, portfolio separation fails, and indexing is not optimal. We show how uninformed investors should structure their portfolios, using the information contained in prices to cope with winner's curse problems. We implement empirically this price- contingent portfolio strategy. Consistent with our theory, the strategy outperforms economically and statistically the index. While momentum can arise in the model, in the data, the momentum strategy does not outperform the price-contingent strategy, as predicted by the theory. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/dd08cb16170b39b5ebe49bc0e4e54a2bfd407c20
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Citations in the corpus
- Speculation and Hedging in Segmented Markets (2014, unknown): “Similar formulations of hedging motives also appear in Grossman-Stiglitz (1980)–type models—for example, Duffie and Rahi (1995), Lo, Mamaysky, and Wang (2004), Watanabe (2008), Biais, Bossaerts, and Spatt (2010) and Huang and Wang (2010).”
- Learning from Prices and the Dispersion in Beliefs (2011, background): “In the RE literature, the current model is most closely related to the long-lived investor model of Wang (1994), and the overlapping generations models of Spiegel (1998), Watanabe (2008) and Biais et al. (2008), although the focus of these papers is different. Wang (1994) studies the relationship be”
- Why Does Return Predictability Concentrate in Bad Times (2017, background): “…momentum include Berk, Green, and Naik (1999), Holden and Subrahmanyam (2002), Johnson (2002), Sagi and Seasholes (2007), Makarov and Rytchkov (2012), Vayanos and Woolley (2013), Biais, Bossaerts, and Spatt (2010), Cespa and Vives (2012), Albuquerque and Miao (2014), and Andrei and Cujean (2017).”
- Information Percolation, Momentum and Reversal (2014, unknown): “Overall, our model predicts a hump-shaped relation between momentum and the 21It is straightforward to show that the sign of the coefficient ρt in (11) is the same as the sign of the correlation between two consecutive returns.”
- Stock Market Volatility and Learning (2008, unknown): “Some papers in this vein study agents that have asymmetric information or asymmetric beliefs; examples include Biais, Bossaerts, and Spatt (2010) and Dumas, Kurshev and Uppal (2009).”