Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition
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Wang_Liquidity and.pdf
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326.68 KB
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Author(s)
Wang, Jiang
Vayanos, Dimitri
Date Issued
November 2011
Journal
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
Abstract
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.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/rfs/hhr128
