第八十期财务与会计学术论坛

题目: Beauty Contests, Heterogeneous Beliefs, and Bubbles in Stocks and Options

 

 演讲者H. Henry Cao, professor, Cheung Kong Graduate School of Business

时间:     20081024日(星期五)300430 PM    

 

地点:         嘉庚二513

 

参加者:      对财务研究有兴趣的广大师生

 

主持人   沈哲老师

 

 

论文摘要:

 

We analyze how beauty contests due to dynamic trading in the presence of heterogeneous

beliefs on public information can result in bubbles in stocks and options. We show that

the effects of additional trading sessions on the stock price can be decomposed into two

effects, the expectation effect and the risk premium effect. The ¯rst effect is caused by

the differences about the mean of the public information among investors. When investors

optimistic (pessimistic) about the public information have higher precision, the stock price

will be higher (lower). The second effect is due to the disagreement about the covariance of

the public information and the stock, which results in a reduction of risk premium, due to

mutual insurance among investors provided by dynamic trading. The risk reduction effect

causes the stock price to increase with the number trading sessions when investors agree

on the expectation of the public signals. Dynamic trading also have two effects on options

prices. The ¯rst effect is that the implied volatility in stock option prices will always decrease,

which reduces option prices. The second effect is that as the stock price will change, this

will in turn affect options prices. Hence, option prices can be higher or lower depending on

the trade off between the two effects. Due to the reduction of risk, dynamic trading results

in higher market liquidity. In the special case that investors disagree about the mean of

the public information but agree on the covariance between the public signals and the stock

payoff, the stock and option prices are not affected. We extend our results to heterogeneous

priors on stock payoffs, dynamic trading without options and multiple stocks.

 

论文作者简介:

 

Xiaozu Wang is a professor of finance at Cheung Kong Graduate School of Business, where he has been teaching since 2004. He received his BS from University of Science & Technology inChina, Ph.D. in pathology fromYaleUniversityand Ph.D in finance from UCLA. His research interests include asset pricing, microstructure, options pricing, international finance.