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Session II-2 Asymetric Information (17/12/2009 à 11h30)

S. Jimenez

Rational Disposition Effects

Auteurs : Daniel Dorn (LeBow College of Business, Drexel University); Günter Strobl (Kenan-Flagler Business School, University of North Carolina)

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Intervenants : Daniel Dorn (LeBow College of Business, Drexel University)

Rapporteurs : Sonia Jimenez

The paper examines the tendency to sell winners and hold on to losers in a dynamic noisy rational expectations equilibrium with informed and uninformed investors. The key feature of the model is that the information asymmetry between investors varies over time. Besides demonstrating that the disposition effect is not intrinsically at odds with rational behavior, the model makes two novel predictions. First, disposition effects among uninformed investors should weaken after events that reduce information asymmetry. Second, disposition effects among uninformed investors should be weaker in persistent winners and persistent losers. The data, transactions of 30,000 clients at a German broker between 1995 and 2000, are consistent with these predictions.

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Uninformed Momentum Traders

Auteurs : A. Emre Konukoglu (Rotman School of Management, University of Toronto)

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Intervenants : A. Emre Konukoglu (Rotman School of Management, University of Toronto)

Rapporteurs : Carol Osler

This paper studies the relation between momentum trading and information. We present a variety of evidence supporting the hypothesis that momentum trading is linked to a lack of information. Firstly, using foreign portfolio flows in individual stocks we document significant momentum trading concentrated in stocks on which foreign investors potentially have more informational disadvantages. Small stocks, stocks with high volatility and low liquidity, and stocks that are internationally less visible are subject to greater momentum trading. In addition, stocks on which foreign trades indicate lower future profitability are subject to higher momentum trading. Secondly, we show that momentum trades exert contemporaneous price pressure and have no valuable longer-run information content. In two quarters following the momentum trades, stocks experience significant return reversal. Using the return reversal after momentum trades we also develop an implementable trading strategy that brings up to 8% per year. Thirdly, there is strong evidence that foreign investors neither possess local market specific information. We show that momentum trading is a sub-optimal investment strategy by showing the negative profitability of a strategy that buys past winners and sells past losers on the cross-section of stocks.

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Hedge Funds and the Origins of Private Information in Currency Markets

Auteurs : Carol Osler (Brandeis International Business School); Vitaliy Vandrovych (State Street Global Advisors, Boston)

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Intervenants : Carol Osler (Brandeis International Business School)

Rapporteurs : Daniel Dorn

This paper provides evidence that hedge funds are a critical source of private fundamental information in currency markets. We analyze the most disaggregated database of currency transactions to date, with ten different categories of market participants including six categories of end users. Our analysis of the information content of individual trades indicates that only one category of end user has information, specifically hedge funds. Orders placed by
Institutional investors, broker-dealers, central banks and government agencies, large corporations, and middle-market corporations provide little information about upcoming returns. Orders of banks in every size category carry information, consistent with now-standard theory that banks gather information from observing customer trades. Theory does not indicate whether banks should be better informed than their customers. Our results suggest that banks are better informed than their individual customers, possibly because they aggregate information from many customers.

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