A Mispricing Model of Stocks Under Asymmetric Information
General Finance
2011-01-07 v1 Portfolio Management
Pricing of Securities
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.
Keywords
Cite
@article{arxiv.1101.1148,
title = {A Mispricing Model of Stocks Under Asymmetric Information},
author = {Winston Buckley and Garfield Brown and Mario Marshall},
journal= {arXiv preprint arXiv:1101.1148},
year = {2011}
}