Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition
Author(s)
Wang, Jiang; Vayanos, Dimitri
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We analyze how asymmetric information and imperfect competition affect liquidity and asset prices. Our model has three periods: Agents are identical in the first, become heterogeneous and trade in the second, and consume asset payoffs in the third. We show that asymmetric information in the second period raises ex ante expected asset returns in the first, comparing both to the case where all private signals are made public and to that where private signals are not observed. Imperfect competition can instead lower expected returns. Each imperfection can move common measures of illiquidity in opposite directions.
Date issued
2011-11Department
Sloan School of ManagementJournal
Review of Financial Studies
Publisher
Oxford University Press
Citation
Vayanos, D., and J. Wang. “Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition.” Review of Financial Studies 25, no. 5 (May 1, 2012): 1339–1365.
Version: Author's final manuscript
ISSN
0893-9454
1465-7368