Delegated trade and the pricing of public and private information

Daniel J. Taylor and Robert E. Verrecchia

Journal of Accounting and Economics, 2015, vol. 60, issue 2, 8-32

Abstract: We extend a standard, rational expectation model of trade to incorporate the possibility of individual investors delegating their trades to an informed financial intermediary. In the presence of delegated trade, we show that a firm׳s risk premium is a function of both the firm׳s exposure to a common risk factor and idiosyncratic characteristics of the firm׳s information environment. We show that even in a large economy, priced risks can manifest in the form of both idiosyncratic firm characteristics and common risk factors; as a consequence, factor-based asset pricing tests cannot rule out that a particular risk is priced.

Keywords: Delegated trade; Institutional investors; Imperfect competition; Risk premium; Expected returns; Information quality; Accounting quality; Idiosyncratic risk; Asset-pricing tests (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G31 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:60:y:2015:i:2:p:8-32

DOI: 10.1016/j.jacceco.2015.07.002

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