A Mispricing Model of Stocks Under Asymmetric Information

Winston Buckley, Garfield Brown and Mario Marshall

Papers from arXiv.org

Abstract: We extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean--reverting Ornstein--Uhlenbeck process. Optimal portfolios and maximum expected log--linear utilities from terminal wealth for informed and uninformed investors are derived. We obtain analogous but more general results which nests those of Guasoni (2006) as a special case of the relative risk aversion approaching one.

Date: 2011-01
New Economics Papers: this item is included in nep-cta and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1101.1148

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