Cross-Asset Speculation in Stock Markets

Dan Bernhardt () and Bart Taub

Journal of Finance, 2008, vol. 63, issue 5, pages 2385-2427

Abstract: In practice, heterogeneously informed speculators combine private information about multiple stocks with information in prices, taking into account how their trades influence the inferences of other speculators via prices. We show how this speculation causes prices to be more correlated than asset fundamentals, raising price volatility. The covariance structure of asset fundamentals drives that of prices, while the covariance structure of liquidity trade drives that of order flows. We characterize how speculator profits vary with the distributions of information and liquidity trade across assets and speculators, and relate the cross-asset factor structure of order flows to that of returns. Copyright (c) 2008 The American Finance Association.

Date: 2008

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2008.01400.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:jfinan:v:63:y:2008:i:5:p:2385-2427

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

Journal of Finance is edited by Robert F. Stambaugh

More articles in Journal of Finance from American Finance Association
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().