Accounting Papers
Document Type
Working Paper
Date of this Version
11-2015
Publication Source
Journal of Accounting and Economics
Volume
60
Issue
2-3
Start Page
8
Last Page
32
DOI
10.1016/j.jacceco.2015.07.002
Abstract
We extend a standard, rational expectation model of trade to incorporate the possibility of individual investors delegating their trades to an informed financial intermediary. In the presence of delegated trade, we show that a firm׳s risk premium is a function of both the firm׳s exposure to a common risk factor and idiosyncratic characteristics of the firm׳s information environment. We show that even in a large economy, priced risks can manifest in the form of both idiosyncratic firm characteristics and common risk factors; as a consequence, factor-based asset pricing tests cannot rule out that a particular risk is priced.
Copyright/Permission Statement
©2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.
Keywords
delegated trade, institutional investors, imperfect competition, risk premium, expected returns, information quality, accounting quality, idiosyncratic risk, asset-pricing tests
Recommended Citation
Taylor, D. J., & Verrecchia, R. E. (2015). Delegated Trade and the Pricing of Public and Private Information. Journal of Accounting and Economics, 60 (2-3), 8-32. http://dx.doi.org/10.1016/j.jacceco.2015.07.002
Embargo Date
8-12-2017
Date Posted: 27 November 2017
This document has been peer reviewed.