Asset pricing under asymmetric information

Häfke, Christian and Sögner, Leopold (1999) Asset pricing under asymmetric information. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 54. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

This article investigates the impacts of asymmetric information within a Lucas (1978) asset pricing economy. Asymmetry enters via the assumption that one group of agents is equipped with superior information about the dividend process. The agents maximize their lifetime utility of the underlying consumption process obtained from the agents' budget constraints, where the agents have the opportunity to invest in a risk asset to transfer income from the current to future periods. Since a closed form solution for the market price cannot be derived analytically, projection methods are applied, as described in Judd (1998), to approximate the expectation integrals in the agents' Euler equation. We derive the result that the informed trader only clearly improves his situation as compared to the non-trade situation if the uninformed trader only observes his own endowment but not the endowment of the informed trader. In the case where agents observe each others' endowment trade never results in a Pareto improvement. (auhtor's abstract)

Item Type: Paper
Keywords: asymmetric information / consumption based asset pricing / equity premium puzzle / projection methods
Classification Codes: JEL C63, D82, G14
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Marketing > Service Marketing und Tourismus
Depositing User: Repository Administrator
Date Deposited: 05 Mar 2002 17:46
Last Modified: 22 Oct 2019 00:41
URI: https://epub.wu.ac.at/id/eprint/688

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