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Competitive investors, trade timing and price discovery

Author

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  • Jung-Juei Lee
  • Lon-Ping Zu
  • Ming-Chang Wang
  • Chau-Jung Kuo

Abstract

This study develops a multiple-period, competitive rational expectations model for examining how competitive informed traders time their informed trading and how information is incorporated into prices. It is found that informed traders may choose either to trade early or late on their information, depending on the parameter values of the proposed model. As the mass of informed traders is large and/or the precision of the private information is high, informed traders choose to trade on their information late. Therefore, prices delay reflecting information and market becomes efficiency until the later trading period.

Suggested Citation

  • Jung-Juei Lee & Lon-Ping Zu & Ming-Chang Wang & Chau-Jung Kuo, 2009. "Competitive investors, trade timing and price discovery," Applied Financial Economics, Taylor & Francis Journals, vol. 19(20), pages 1661-1674.
    • Handle: RePEc:taf:apfiec:v:19:y:2009:i:20:p:1661-1674
    DOI: 10.1080/09603100802599621
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