Chong, Zhiwei (2010): Rational expectations equilibrium with transaction costs in financial markets.
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We obtain a closed-form solution to rational expectations equilibrium with transaction costs in the framework of Grossman and Stiglitz (1980) [On the impossibility of informationally efficient markets. American Economic Review 70, 543-566]. Individual private information incorporated into prices is reduced due to suppressed trading activities by transaction costs. The equilibrium fraction of informed traders increases (decreases) with transaction costs when the costs are low (high). The informativeness of prices decreases with transaction costs.
|Item Type:||MPRA Paper|
|Original Title:||Rational expectations equilibrium with transaction costs in financial markets|
|Keywords:||rational expectations; transaction cost; information acquisition|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
|Depositing User:||Zhiwei Chong|
|Date Deposited:||02. Nov 2011 01:50|
|Last Modified:||16. Feb 2013 08:35|
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