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The effect of asymmetric information and transaction costs on asset pricing: theory and tests

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  • Bellalah, Makram
  • Aboura, Sofiane
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    Abstract

    This paper presents a capital asset pricing model in the presence of asymmetric information and transaction costs. The model is a generalized version of Merton's (1987) model and Black's (1974) model. Empirical tests show a negative relation between the expected rate of return and the shadow costs of incomplete information. The results in this paper have the potential to explain the home bias equity in a domestic and an international context.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/9772/1/cereg2001-06_BELLALAH_The%20Effect%20of%20Asymmetric%20Information%20and%20Transaction%20Costs%20on%20Asset%20Pricing%20_Theory%20and%20Tests.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/9772.

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    Date of creation: Jun 2003
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    Handle: RePEc:dau:papers:123456789/9772

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    Related research

    Keywords: Asset pricing; Asymmetric information; Home bias;

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    1. Cooper, Ian A. & Kaplanis, Evi, 2000. "Partially segmented international capital markets and international capital budgeting," Journal of International Money and Finance, Elsevier, vol. 19(3), pages 309-329, June.
    2. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley.
    3. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-78, May.
    4. Black, Fischer, 1974. "International capital market equilibrium with investment barriers," Journal of Financial Economics, Elsevier, vol. 1(4), pages 337-352, December.
    5. Falkenstein, Eric G, 1996. " Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings," Journal of Finance, American Finance Association, vol. 51(1), pages 111-35, March.
    6. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    7. Hasan, Iftekhar & Simaan, Yusif, 2000. "A rational explanation for home country bias," Journal of International Money and Finance, Elsevier, vol. 19(3), pages 331-361, June.
    8. Mayshar, Joram, 1981. "Transaction Costs and the Pricing of Assets," Journal of Finance, American Finance Association, vol. 36(3), pages 583-97, June.
    9. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
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