Keywords: Institutional investors, rational expectations, asymmetric information
Abstract: This paper uses a competitive equilibrium model to study how institutional
investors influence the volatility and the informativeness of asset prices.
Institutional investors are assumed to be ``rational'' informed traders, while
individual investors are supposed to be ``naive'' informed traders, insofar
as the former use the equilibrium price to extract information while the
latter do not. The paper compares the informativeness and the volatility of
the equilibrium price in an economy in which the informed traders are naive and
in one where they are rational; the paper also investigates how the price characteristics
react to changes in the parameters, in particular in the number of informed
Full paper (349 KB PDF)
| Full paper (1066 KB Postscript)
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Last update: June 8, 1998