Hostname: page-component-cd9895bd7-jn8rn Total loading time: 0 Render date: 2024-12-25T07:27:31.088Z Has data issue: false hasContentIssue false
  • English
  • Français

A Probability Model of Asset Trading

Published online by Cambridge University Press:  19 October 2009

Thomas E. Copeland
Get access Rights & Permissions [Opens in a new window]

Extract

In a world where individuals are assumed to receive new information about an asset in random and sequential order, the volume of trading for a given message is a random variable. If the probabilities of trading events can be specified, it is possible to develop closed form expressions for the expected number of trades and the variance of trading. The result is a theory of trading which relates the number of trades to the characteristics of the message and to the number of participants in the market for an asset.

Type
Proceedings of 1977 Western Finance Association Meeting: Selected Conference Papers
Information
Journal of Financial and Quantitative Analysis , Volume 12 , Issue 4 , November 1977 , pp. 563 - 578
Copyright
Copyright © School of Business Administration, University of Washington 1977

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Benston, George J., and Hagerman, Robert L.. “Determinants of Bid-Asked Spreads in the Over-the-Counter Market.” Journal of Financial Economics (December 1974).Google Scholar
[2]Boness, A. James, and Jen, Frank C.. “A Model of Information Diffusion, Stock Market Behavior, and Equilibrium Price.” Journal of Financial and Quantitative Analysis (September 1970).CrossRefGoogle Scholar
[3]Cass, D., and Stiglitz, J.. “The Structure of Investor Preferences and Asset Returns, and Separability in Portfolio Allocation: A Contribution to the Pure Theory of Mutual Funds.” The Journal of Economic Theory, vol. 2 (June 1970).CrossRefGoogle Scholar
[4]Clark, Peter King. “A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices.” Econometrica (January 1973), pp. 135–155.CrossRefGoogle Scholar
[5]Copeland, Thomas E. “A Model of Asset Trading under the Assumption of Sequential Information Arrival.” The Journal of Finance (September 1976).CrossRefGoogle Scholar
[6]Crouch, Robert L. “The Volume of Transactions and Price Changes on the New York Stock Exchange.” Financial Analysts Journal (July–August 1970).CrossRefGoogle Scholar
[7]Demsetz, Harold. “The Cost of Transacting.” Quarterly Journal of Economics (February 1968).CrossRefGoogle Scholar
[8]Epps, T. W., and Epps, M. L.. “The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture-of-Distributions Hypothesis.” Econometrica (March 1976), pp. 305–321.Google Scholar
[9]Epps, T. W. “Security Price Changes and Transaction Volumes: Theory and Evidence.” AER (1975).Google Scholar
[10]Epps, T. W. “The Demand for Broker's Services: The Relation between Security Trading Volume and Transaction Cost.” The Bell Journal of Economics (Spring 1976).Google Scholar
[11]Fama, Eugene F., and Miller, Merton H.. The Theory of Finance. New York: Holt, Rinehart and Winston (1972).Google Scholar
[12]Feller, William. An Introduction to Probability Theory, vol. 1, 3rd ed.New York: John Wiley and Sons, Inc. (1968).Google Scholar
[13]Foster, F. G., and Stuart, A.. “Distribution-Free Tests in Time Series Based on the Breaking of Records.” Journal of the Royal Statistical Society (Series B, 1954).Google Scholar
[14]Granger, Clive W. J., and Morgenstern, Oskar. Predictability of Stock Market Prices. Lexington, Mass.: D. C. Heath and Company (1967).Google Scholar
[15]Kruas, Alan, and Stoll, Hans R.. “Price Impacts of Block Trading on the New York Stock Exchange.” The Journal of Finance (June 1972).Google Scholar
[16]Kruas, Alan. “Parallel Trading by Institutional Investors.” Journal of Financial and Quantitative Analysis (December 1972).CrossRefGoogle Scholar
[17]Lintner, John. “The Aggregation of Investors' Diverse Judgments and References in Purely Competitive Security Markets.” Journal of Financial and Quantitative Analysis (December 1972).Google Scholar
[18]Parzen, Emanuel. Stochastic Processes. San Francisco: Holden-Day, Inc. (1962).Google Scholar
[19]Stoll, Hans R. “The Economics of Dealers in Securities Markets.” Working paper, University of Pennsylvania (April 1974).Google Scholar
[20]Stoll, Hans R. “Dealer Inventory Behavior: An Empirical Investigation of NASDAQ Stocks.” Working paper no. 15–74, Rodney L. White Center for Financial Research.Google Scholar
[21]Tinic, Seha M. “The Economics of Liquidity Services.” Quarterly Journal of Economics (February 1972).Google Scholar
[22]West, Richard, and Tinic, Seha. “Competition and the Pricing of Dealer Service in the OIC Market.” Journal of Financial and Quantitative Economics (June 1972).Google Scholar
[23]Westerfield, Randolph. “Price Change and Volume Relationships and the Distribution of Common Stock Price Changes.” Working paper no. 6–73, The Rodney White Center for Financial Research, University of Pennsylvania (1973).Google Scholar
[24]Ying, Charles C. “Stock Market Prices and Volume of Sales.” Econometrica (July 1966).CrossRefGoogle Scholar