Optimal demand in a mispriced asymmetric Carr–Geman–Madan–Yor (CGMY) economy

Winston Buckley () and Sandun Perera ()
Additional contact information
Winston Buckley: Bentley University
Sandun Perera: University of Michigan-Flint

Annals of Finance, 2019, vol. 15, issue 3, No 2, 337-368

Abstract: Abstract We employ a simple numerical scheme to compute optimal portfolios and utilities of informed and uninformed investors in a mispriced Carr–Geman–Madan–Yor (CGMY) Lévy market under information asymmetry using instantaneous centralized moments of returns (ICMR). We also investigate the impact on investors’ demand for stocks and indices at different levels of asymmetric information, mispricing, investment horizon, jump intensity, and volatility. Our simulations not only confirm that uninformed expected demand falls as information asymmetry increases but also offer strong evidence that informed expected demand behaves in a similar manner. In particular, expected demand of informed investors falls whenever information asymmetry exceeds 50%. The investor that demands more of the risky asset maintains that position over the entire investment horizon at each level of mispricing and information asymmetry. The absolute difference in expected demand between the uninformed and informed investors increases with the investment horizon, but decreases with the level of information asymmetry.

Keywords: Carr–Geman–Madan–Yor (CGMY)markets; Mispricing models under asymmetric information; Optimal portfolio; Instantaneous centralized moments of returns (ICMR) (search for similar items in EconPapers)
JEL-codes: G10 G11 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10436-018-0335-2 Abstract (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: https://EconPapers.repec.org/RePEc:kap:annfin:v:15:y:2019:i:3:d:10.1007_s10436-018-0335-2

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10436/PS2

DOI: 10.1007/s10436-018-0335-2

Access Statistics for this article

Annals of Finance is currently edited by Anne Villamil

More articles in Annals of Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().