Abstract

http://ssrn.com/abstract=1345707
 
 

References (54)



 
 

Citations (23)



 


 



Testing Asymmetric-Information Asset Pricing Models


Bryan T. Kelly


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Alexander Ljungqvist


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

February 2009

CEPR Discussion Paper No. DP7180

Abstract:     
Theoretical asset pricing models routinely assume that investors have heterogeneous information. We provide direct evidence of the importance of information asymmetry for asset prices and investor demands using plausibly exogenous variation in the supply of information caused by the closure or restructuring of brokerage firms' research operations. Consistent with predictions derived from a Grossman and Stiglitz-type model, share prices and uninformed investors' demands fall as information asymmetry increases. Cross-sectional tests support the comparative statics. Prices and uninformed demand experience larger declines, the more investors are uninformed, the larger and more variable is turnover, the more uncertain is the asset's payoff, and the noisier is the better-informed investors' signal. We show that prices fall because expected returns become more sensitive to a liquidity-risk factor. Our results imply that information asymmetry has a substantial effect on asset prices and that a primary channel linking asymmetry to prices is liquidity.

Number of Pages in PDF File: 46

Keywords: analyst coverage, Asymmetric-information asset pricing, liquidity

JEL Classification: G12, G14, G17, G24

working papers series


Date posted: February 18, 2009  

Suggested Citation

Kelly, Bryan T. and Ljungqvist, Alexander, Testing Asymmetric-Information Asset Pricing Models (February 2009). CEPR Discussion Paper No. DP7180. Available at SSRN: http://ssrn.com/abstract=1345707

Contact Information

Bryan T. Kelly
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Alexander Ljungqvist (Contact Author)
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street, Suite 9-160
New York, NY 10012-1126
United States
212-998-0304 (Phone)
212-995-4220 (Fax)
HOME PAGE: http://pages.stern.nyu.edu/~aljungqv
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
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References:  54
Citations:  23

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