Informed Trading, Investment, and Welfare

James Dow and Rohit Rahi ()

Economics Working Papers from European University Institute

Abstract: This paper studies the welfare economics of informed trading in a stock market. We model the effect of more informative prices on investment, given that this dependence will itself be reflected in equilibrium prices. We show that in rational expectations equilibrium with price-taking competitive behaviour, and in the presence of risk-neutral uninformed agents, uninformed traders cannot lose money on average to informed traders.

Keywords: FINANCIAL MARKET; INFORMATION; GOVERNMENT POLICY; REGULATION; WELFARE ECONOMICS (search for similar items in EconPapers)
JEL-codes: D60 D82 G14 G18 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1997
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Informed Trading, Investment, and Welfare (2003)
Working Paper: Informed Trading, Investment, and Welfare (1998)
Working Paper: Informed Trading, Investment and Welfare (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco97/03

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