[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2302.10485.html
   My bibliography  Save this paper

Optimal investment with a noisy signal of future stock prices

Author

Listed:
  • Peter Bank
  • Yan Dolinsky
Abstract
We consider an investor who is dynamically informed about the future evolution of one of the independent Brownian motions driving a stock's price fluctuations. With linear temporary price impact the resulting optimal investment problem with exponential utility turns out to be not only well posed, but it even allows for a closed-form solution. We describe this solution and the resulting problem value for this stochastic control problem with partial observation by solving its convex-analytic dual problem.

Suggested Citation

  • Peter Bank & Yan Dolinsky, 2023. "Optimal investment with a noisy signal of future stock prices," Papers 2302.10485, arXiv.org, revised Dec 2023.
    • Handle: RePEc:arx:papers:2302.10485
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2302.10485
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bandini, Elena & Cosso, Andrea & Fuhrman, Marco & Pham, Huyên, 2019. "Randomized filtering and Bellman equation in Wasserstein space for partial observation control problem," Stochastic Processes and their Applications, Elsevier, vol. 129(2), pages 674-711.
    2. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    3. Peter Bank & Yan Dolinsky & Mikl'os R'asonyi, 2021. "What if we knew what the future brings? Optimal investment for a frontrunner with price impact," Papers 2108.04291, arXiv.org, revised May 2022.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christiane Goodfellow & Dirk Schiereck & Steffen Wippler, 2013. "Are behavioural finance equity funds a superior investment? A note on fund performance and market efficiency," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 111-119, April.
    2. Daher, Wassim & Karam, Fida & Ahmed, Naveed, 2023. "Insider Trading with Semi-Informed Traders and Information Sharing: The Stackelberg Game," MPRA Paper 118138, University Library of Munich, Germany.
    3. Berentsen, Aleksander & Huber, Samuel & Marchesiani, Alessandro, 2016. "The societal benefit of a financial transaction tax," European Economic Review, Elsevier, vol. 89(C), pages 303-323.
    4. Gianbiagio Curato & Jim Gatheral & Fabrizio Lillo, 2014. "Optimal execution with nonlinear transient market impact," Papers 1412.4839, arXiv.org.
    5. Grout, Paul A. & Zalewska, Anna, 2012. "The effect of option granting on executive stock purchases," Economics Letters, Elsevier, vol. 114(1), pages 12-15.
    6. Pichler, Anton & Poledna, Sebastian & Thurner, Stefan, 2021. "Systemic risk-efficient asset allocations: Minimization of systemic risk as a network optimization problem," Journal of Financial Stability, Elsevier, vol. 52(C).
    7. Rime, Dagfinn & Sarno, Lucio & Sojli, Elvira, 2010. "Exchange rate forecasting, order flow and macroeconomic information," Journal of International Economics, Elsevier, vol. 80(1), pages 72-88, January.
    8. Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2009. "The information content of market liquidity: An empirical analysis of liquidity at the Oslo Stock Exchange?," Working Paper 2009/26, Norges Bank.
    9. Lones Smith, 2000. "Private Information and Trade Timing," American Economic Review, American Economic Association, vol. 90(4), pages 1012-1018, September.
    10. Sun, Yuxin & Ibikunle, Gbenga, 2017. "Informed trading and the price impact of block trades: A high frequency trading analysis," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 114-129.
    11. Krishnamurti, Chandrasekhar & Pensiero, Domenico & Velayutham, Eswaran, 2021. "Corruption risk and stock market effects: Evidence from the defence industry," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    12. Yue Zhao & Difang Wan, 2018. "Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 243-270, February.
    13. Chang, Sanders S. & Wang, F. Albert, 2015. "Adverse selection and the presence of informed trading," Journal of Empirical Finance, Elsevier, vol. 33(C), pages 19-33.
    14. Gur Huberman & Dominika Halka, 2001. "Systematic Liquidity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(2), pages 161-178, June.
    15. Liu, Hong & Qi, Lina & Li, Zaili, 2019. "Insider trading, representativeness heuristic insider, and market regulation," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 48-64.
    16. Rasmus Fatum & Jesper Pedersen & Peter Norman Sørensen, 2010. "Are the Intraday Effects of Central Bank Intervention on Exchange Rate Spreads Asymmetric and State Dependent?," Discussion Papers 10-20, University of Copenhagen. Department of Economics.
    17. Medrano, Luis Angel & Vives, Xavier, 2001. "Strategic Behavior and Price Discovery," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 221-248, Summer.
    18. Xianfeng Jiang & Yongdong Shi, 2006. "The Impact of Insider Trading on the Secondary Market with Order-Driven System," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 129-143, May.
    19. Guillermo Llorente & Jiang Wang, 2020. "Trading and information in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(8), pages 1231-1263, August.
    20. Jhinyoung Shin & Rajdeep Singh, 2010. "Corporate Disclosures: Strategic Donation of Information," International Review of Finance, International Review of Finance Ltd., vol. 10(3), pages 313-337, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2302.10485. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.