Date of this Version
Journal of Accounting and Economics
We characterize the steady-state equilibrium in which informed traders who exhibit heuristic (i.e., representativeness, as opposed to Bayesian) and Bayesian behaviors achieve the same expected utility. Then, we show how the endogenous, steady-state proportion of heuristic traders is affected by the quality of public information and other exogenous features of our model. Finally, we discuss how the presence of heuristic traders potentially alters the link between improved public disclosure and market liquidity, the variance in the change in price, and market efficiency.
capital markets, heuristic trade, disclosure
Fischer, P. E., & Verrecchia, R. E. (1999). Public Information and Heuristic Trade. Journal of Accounting and Economics, 27 (1), 89-124. http://dx.doi.org/10.1016/S0165-4101(98)00046-9
Date Posted: 27 November 2017
This document has been peer reviewed.