Impediments to Financial Trade: Theory and Applications

Nicolae Gârleanu, Stavros Panageas and Jianfeng Yu

No 22697, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a tractable model of an informationally inefficient market featuring non-revealing prices, no noise traders, and general assumptions on preferences and payoff distributions. We show the equivalence between our model and a substantially simpler model whereby investors face distortionary investment taxes depending both on their identity and the asset class. This equivalence allows us to account for such phenomena as under-diversification. We further employ the model to assess approaches to performance evaluation, and find that it provides a theoretical basis for some intuitive practices adopted by finance professionals, such as style analysis.

JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2016-09
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Nicolae Gârleanu & Stavros Panageas & Jianfeng Yu & Stijn Van Nieuwerburgh, 2020. "Impediments to Financial Trade: Theory and Applications," The Review of Financial Studies, vol 33(6), pages 2697-2727.

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Journal Article: Impediments to Financial Trade: Theory and Applications (2020)
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