A mispricing model of stocks under asymmetric information
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Publication:1926893
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.
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Cited in
(9)- It takes all sorts: a heterogeneous agent explanation for prediction market mispricing
- Optimal demand in a mispriced asymmetric Carr-Geman-Madan-Yor (CGMY) economy
- A jump model for fads in asset prices under asymmetric information
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