Ambiguous Information and Trading Volume in stock market

This paper studies the information transmission and the effect of ambiguous information and transaction cost on trading volume. We consider a market with risk-averse informed and uninformed investors with CARA utility function and the supply of the risky asset is random. In this model, all investors have ambiguous beliefs about the probability distribution of the risky asset payoff before the signal was announced. After the signal is arrival, the speculator, informed investor, receives a private information signal about the realization of the risky asset payoff such that the speculator know precisely the conditional distribution of the payoff. ∗Address: Wylie Hall Rm 105, 100 S. Woodlawn, Bloomington, IN 47405-7104, USA, e-mail: [email protected].