Informed Trading, Investment, and Welfare
AbstractThis paper studies the welfare economics of informed trading in a stock market. We model the effect of more informative prices on investment, given that this dependence will itself be reflected in equilibrium prices. We show that in rational expectations equilibrium with price-taking competitive behaviour, and in the presence of risk-neutral uninformed agents, uninformed traders cannot lose money on average to informed traders.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number eco97/03.
Length: 22 pages
Date of creation: 1997
Date of revision:
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Web page: http://www.eui.eu/ECO/
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FINANCIAL MARKET ; INFORMATION ; GOVERNMENT POLICY ; REGULATION ; WELFARE ECONOMICS;
Other versions of this item:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D60 - Microeconomics - - Welfare Economics - - - General
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