The effect of asymmetric information and transaction costs on asset pricing: theory and tests
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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- Merton, Robert C, 1987.
" A Simple Model of Capital Market Equilibrium with Incomplete Information,"
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- Merton, Robert C., 1987. "A simple model of capital market equilibrium with incomplete information," Working papers 1869-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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- Iftekhar Hasan & Yusif Simaan, 1999. "A Rational Explanation For Home Country Bias," 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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- 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.
- Mayshar, Joram, 1981. "Transaction Costs and the Pricing of Assets," Journal of Finance, American Finance Association, vol. 36(3), pages 583-97, June.
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