Profitable Informed Trading in a Simple General Equilibrium Model of Asset Pricing

James Dow and Gary Gorton

No 4315, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a simple general equilibrium model of asset pricing in which profitable informed trading can occur without any "noise" added to the model. It shows that models of profitable informed trading must restrict the portfolio choices of uninformed traders: in particular, they cannot buy the market portfolio. In this model, profitable informed trading lowers the welfare of all agents when compared across steady states.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 1993-04
Note: AP
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Journal Article: Profitable Informed Trading in a Simple General Equilibrium Model of Asset Pricing (1995)
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