On the impossibility of insider trade in rational expectations equilibria
AbstractExisting no trade results are based on the common prior assumption (CPA). This paper identifies a strictly weaker condition than the CPA under which speculative trade is impossible in a rational expectations equilibrium (REE). As our main finding, we demonstrate the impossibility of speculative asset trade in an REE whenever an insider is involved who knows the asset's true value. To model insider trade as an equilibrium phenomenon an alternative equilibrium concept than the REE is thus required.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 399.
Length: 18 pages
Date of creation: 2013
Date of revision:
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More information through EDIRC
Levin-Coburn Report; Goldman Sach; Insider Trade; Rational Expectations;
Other versions of this item:
- Zimper, Alexander, 2014. "On the impossibility of insider trade in rational expectations equilibria," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 109-118.
- Alexander Zimper, 2013. "On the impossibility of insider trade in rational expectations equilibria," Working Papers 201379, University of Pretoria, Department of Economics.
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
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