Asymmetric Information, Trading Volume, and Portfolio Performance

Jackson, Antony (2013) Asymmetric Information, Trading Volume, and Portfolio Performance. Corporate Ownership and Control, 11 (1A). pp. 8-19.

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    Abstract

    In dealership markets, asymmetric information feeds through to higher transaction costs as dealers adjust their bid-ask spreads to compensate for anticipated losses. In this paper, we show that the presence of asymmetric information can also provide a positive externality to those market participants who operate in multiple markets-portfolio managers. Specifically, insiders lower the estimation errors of portfolio selection methods, thus improving asset allocation. We develop multiple artificial markets, in which portfolio managers trade alongside informed and uniformed speculators, and we contrast the performance of 'volatility timing'-a method that relies on efficient price discovery - with that of 'naive diversification'. Volatility timing is shown to consistently outperform naive diversification on a risk-adjusted basis.

    Item Type: Article
    Faculty \ School: Faculty of Science > School of Computing Sciences
    Depositing User: Pure Connector
    Date Deposited: 21 Jan 2014 12:26
    Last Modified: 13 Apr 2019 00:52
    URI: https://ueaeprints.uea.ac.uk/id/eprint/47350
    DOI:

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