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Journal Article

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
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328272
Stable URL: http://www.jstor.org/stable/2328272
Page Count: 17
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Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy
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Abstract

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.

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