Liquidity and asset returns under asymmetric information and imperfect competition

Vayanos, Dimitri ORCID: 0000-0002-0944-4914 and Wang, Jiang (2012) Liquidity and asset returns under asymmetric information and imperfect competition. Financial Markets Group Discussion Papers (708). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We analyze how asymmetric information and imperfect competition affect liquidity and asset prices. Our model has three periods: agents are identical in the first, become heterogeneous and trade in the second, and consume asset payoffs in the third. We show that asymmetric information in the second period raises ex ante expected asset returns in the first, comparing both to the case where all private signals are made public and to that where private signals are not observed. Imperfect competition can instead lower expected returns. Each imperfection can move common measures of illiquidity in opposite directions.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2012 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
Date Deposited:	29 Jun 2023 10:27
Last Modified:	11 Dec 2024 19:46
URI:	http://eprints.lse.ac.uk/id/eprint/119045

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