Advance Information and Asset Prices

Jianjun Miao and Rui Albuquerque

No 44, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: This paper provides an explanation for momentum and reversal in stock returns within a rational expectations framework in which investors are heterogeneous in their information and investment opportunities. We assume that informed agents privately receive advance information about company earnings that materializes into the future. While this information is immediately incorporated into prices, stock prices underreact to it causing short-run momentum. Stock prices may appear to move in ways unrelated to current fundamentals. When the information materializes, the stock price reverts back to its long run mean mimicking an overreaction pattern.

Date: 2008
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Advance information and asset prices (2014)
Working Paper: Advance Information and Asset Prices (2007)
Working Paper: Advance Information and Asset Prices
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:44

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