Download or read book Asymmetric Information, Turnover Anomaly, No Trade and the Short Sale Constraint written by Pongsak Rubinstein Hoontrakul (Mark) and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation theoretically considers an observed turnover anomaly (in the Thailand stock market) and attributes the findings to a combination of informed trading on asymmetric information with a short sale prohibition. The firm-specific sequential trade model is an extension of Easley and O'Hara's (1992a) microstructure model for price formation in a competitive world with informed insiders, market makers, and liquidity traders all being risk neutral. The decision tree shows the trade process with the prior probabilities of observing a given outcome of the trading process (buy, sell, or no trade). The market maker sets his 'regret free' price by using Bayesian analysis. The results are consistent with the observation of a positive and intertemporal relationship between turnover and stock returns for an immature market characterized by insider trading. Specifically, high (low) turnover stocks are associated with positive (negative) return in good (bad) news case. A no trade event is informative and is found to be somewhat bad news in a market with a short sale prohibition. Using the theory of probabilistic information measures (relative entropy), the model further predicts that the speed with which stocks adjust to lower equilibrium prices will be faster than to higher prices on given conditions. The overall results conclusively suggest that a short sale prohibition increases market informational efficiency, particularly in a bad news case given asymmetric ownership between informed and uninformed traders.