On the impossibility of insider trade in rational expectations equilibria

Alexander Zimper

The North American Journal of Economics and Finance, 2014, vol. 28, issue C, 109-118

Abstract: Existing no trade results are based on the common prior assumption (CPA). This paper identifies a strictly weaker condition than the CPA under which speculative trade is impossible in a rational expectations equilibrium (REE). As our main finding, we demonstrate the impossibility of speculative asset trade in an REE whenever an insider is involved who knows the asset's true value. To model insider trade as an equilibrium phenomenon an alternative equilibrium concept than the REE is thus required.

Keywords: Levin-Coburn report; Goldman Sach; Insider trade; Rational expectations (search for similar items in EconPapers)
JEL-codes: D51 D53 G02 (search for similar items in EconPapers)
Date: 2014
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Working Paper: On the impossibility of insider trade in rational expectations equilibria (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:28:y:2014:i:c:p:109-118

DOI: 10.1016/j.najef.2014.02.004

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