Research seminar
Theme: «Inconspicuousness and obfuscation: How large shareholders dynamically manipulate output and information for trading purposes»
On Tuesday, May 15 at 4.40 pm International College of Economics and Finance will hold Research seminar.
Speaker: Bart Taub (Durham University)
Theme: «Inconspicuousness and obfuscation: How large shareholders dynamically manipulate output and information for trading purposes»
Venue:Pokrovski Bulvar, 11, Room Zh-822
Abstact: I relate the theory of large shareholders in corporate governance to market microstructure theory. The large shareholder literature examines how a large shareholder trades off the advantage of being able to influence the decisions of the firm, while small shareholders free ride on the outcomes, against the extra risk entailed in large shareholdings. The market microstructure literature is concerned with the use of private information in pricing stocks.
The large shareholder can affect the underlying value of the firm not only in the conventional sense, he can profit because this improves his ability to hide his private information from other informed traders and from market makers. In a static version of the model, the large shareholder will increase the volatility of firm fundamentals, but only on the component of his private information that is unforecastable by the market: he obfuscates.
In dynamic models of stock markets with private information, informed traders, including the large shareholder, chop their orders in order to delay the impact of their information on prices so that they can be inconspicuous. Using Fourier transform methods to construct a continuous time dynamic version of the large shareholder model, I demonstrate that the large shareholder alters the fundamental autoregressive structure of the fundamental value of the firm because this improves his ability to hide his private information from other informed traders and from market makers, that is, to obfuscate.