The effect of asymmetric information and transaction costs on asset pricing: theory and tests
AbstractThis 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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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/9772.
Date of creation: Jun 2003
Date of revision:
Asset pricing; Asymmetric information; Home bias;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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New York University, Leonard N. Stern School Finance Department Working Paper Seires
99-067, New York University, Leonard N. Stern School of Business-.
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- Mayshar, Joram, 1981. "Transaction Costs and the Pricing of Assets," Journal of Finance, American Finance Association, vol. 36(3), pages 583-97, June.
- 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.
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