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Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy
Stephen A. Ross
The Journal of Finance
Vol. 44, No. 1 (Mar., 1989), pp. 1-17
Stable URL: http://www.jstor.org/stable/2328272
Page Count: 17
You can always find the topics here!Topics: Prices, Pricing, Martingales, Finance, Financial economics, Information flow, Financial audits, Cash flow, Arbitrage, Investors
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The no-arbitrage martingale analysis is used to study the effect on asset prices of changes in the rate of information flow. The analysis is first used to develop some simple tools for asset pricing in a continuous-time setting. These tools are then applied to determine the effect of information on prices and price volatility, to extend Samuelson's theorem on prices fluctuating randomly, and to study the impact on prices of the resolution of uncertainty. The conditions under which uncertainty resolution is irrelevant for asset pricing are shown to be similar to those which support the MM irrelevance theorems.
The Journal of Finance © 1989 American Finance Association