Equilibrium Asset Pricing and Portfolio Choice Under Asymmetric Information

Bruno Biais, Peter Bossaerts and Chester Spatt

The Review of Financial Studies, 2010, vol. 23, issue 4, 1503-1543

Abstract: 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.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (54)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhp113 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Equilibrium Asset Pricing and Portofolio Choice Under Asymmetric Information (2009)
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:oup:rfinst:v:23:y:2010:i:4:p:1503-1543

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().