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Informational asymmetries and a multiplier effect on price correlation and trading.
- Source :
- Annals of Finance; Oct2005, Vol. 1 Issue 4, p395-421, 27p, 2 Charts, 2 Graphs
- Publication Year :
- 2005
-
Abstract
- In this paper we show how rational expectations equilibrium models with asymmetric information, without market frictions, can generate extreme comovements in asset prices. Information asymmetries generate a multiplier effect on price correlation - a World Bank definition of financial contagion. This is shown in two frameworks: perfect and imperfect competition. In the first framework, we also model a version of home-bias, showing why information sharing explains crosscountry capital flows. In the second framework, we provide closed form solutions for a model with multiple insiders and assets that generalize the ideas in [10]. [ABSTRACT FROM AUTHOR]
- Subjects :
- FINANCE
CAPITAL movements
BUSINESS
ECONOMICS
Subjects
Details
- Language :
- English
- ISSN :
- 16142446
- Volume :
- 1
- Issue :
- 4
- Database :
- Complementary Index
- Journal :
- Annals of Finance
- Publication Type :
- Academic Journal
- Accession number :
- 17957224
- Full Text :
- https://doi.org/10.1007/s10436-005-0017-8