On the impossibility of insider trade in rational expectations equilibria
No 201379, Working Papers from University of Pretoria, Department of Economics
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)
Pages: 17 pages
New Economics Papers: this item is included in nep-mic
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Journal Article: On the impossibility of insider trade in rational expectations equilibria (2014)
Working Paper: On the impossibility of insider trade in rational expectations equilibria (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201379
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