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Session Overview
APT-4: Information and Entry
Friday, 23/Aug/2019:
10:30 - 12:00

Session Chair: Bradyn Breon-Drish, UC San Diego
Location: D -105

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Delayed Information Acquisition and Entry into New Trading Opportunities

Snehal Banerjee, Bradyn Breon-Drish

UC San Diego, United States of America

Discussant: Vyacheslav Fos (Boston College)

We model dynamic information acquisition and entry by a strategic trader. Instead of requiring the trader to commit before the market opens, we allow her to choose when to enter in response to public news. We characterize the unique equilibrium, in which entry is driven by public uncertainty and generically exhibits delay. The model provides novel implications for how the likelihood and timing of entry, and precision choice, depend on news volatility and the trading horizon. Our results shed light on why institutional investors delay entry into new opportunities, and how these dynamics vary across asset characteristics and market environments.

efa2019-APT-4-223-Delayed Information Acquisition and Entry into New Trading Opportunities.pdf

Time-Varying Market Participation, Consumption Risk-Sharing, and Asset Dynamics

Redouane Elkamhi, Chanik Jo

University of Toronto, Canada

Discussant: Steven Baker (University of Virginia)

We propose a general equilibrium model where heterogeneous risk-averse agents endogenously choose to enter or exit the market. We characterize the equilibrium in semi-closed form and present a novel conditional CCAPM. The model implies a procyclical variation in stock market participation. This time-variation gives rise to a countercyclical share of dividend in stockholders aggregate consumption, which drives the countercyclical amount of stockholders' consumption risk, as opposed to aggregate consumption risk dynamics. The price of consumption risk in our model is not only affected by consumption redistribution of stockholders, but also by the time-variation in stock market participation. We find, under the assumption of time-invariant risk aversion, that the latter effect dominates the former, leading to the procyclical price of consumption risk. We provide empirical evidence for both the amount and price of consumption risk dynamics, supporting our theory. Overall, this article shows that it is the countercyclical stockholders' amount of risk due to time-varying risk-sharing that explains time-varying risk premium and excess volatility.

efa2019-APT-4-1525-Time-Varying Market Participation, Consumption Risk-Sharing, and Asset Dynamics.pdf

Why Does Public News Augment Information Asymmetries?

Julio A. Crego

Tilburg University, Netherlands, The

Discussant: Sylvain Carré (Ecole Polytechnique Fédérale de Lausanne)

The arrival of a public signal worsens the adverse selection problem if informed investors are risk-averse. Precisely, the public signal reduces uncertainty which boosts informed investors' participation leading to more toxic order flow. I confi rm the model's empirical predictions by estimating the effect of the publication of the weekly change in oil inventories on liquidity via a difference-in-differences strategy. I show that the mean bid-ask spread doubles immediately after the release and volume increases by 32 percent regardless of the report's content. Further, in line with the model, implied volatility drops and insider's trading increase after the report's publication.

efa2019-APT-4-645-Why Does Public News Augment Information Asymmetries.pdf

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