Learning, Cascades and Transaction Costs

Maria Romano

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: This paper analyzes the effect of transaction costs on the social learning in an asset market with asymmetric information, sequential trading and competitive price mechanism. Both fixed and proportional transaction costs reduce the informational content of trading orders and lead to informational cascades. If transaction costs are very high, an informational cascade can occur not only when beliefs converge to a specific asset value, but also when in the market there is complete uncertainty about the asset's fundamental value. Finally, if the asset value in the bad state is sufficiently low, proportional transaction costs lead to an informational cascade only when prices are very high.

Date: 2004-09-01, Revised 2006-02-01
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Giornale degli Economisti e Annali di Economia, 2009, Volume 68, Issue 1. 81-109.

Downloads: (external link)
http://www.csef.it/WP/wp123.pdf (application/pdf)

Related works:
Journal Article: Learning, Cascades, and Transaction Costs (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:123

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().