The Effect of Asymmetric Information and Transaction Costs on Asset Pricing: Theory and Test

33 Pages Posted: 21 Apr 2003

See all articles by Makram Bellalah

Makram Bellalah

Conservatoire des Arts et Metiers (CNAM)

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Abstract

This paper presents a capital asset pricing model in the presence of asymmetric information and transaction costs. The model is a generalized version of Merton's (1987) model and Black's (1974) model. Empirical tests show a negative relation between the expected rate of return and the shadow costs of incomplete information. The results in this paper have the potential to explain the home bias equity in a domestic and an international context.

Suggested Citation

Bellalah, Makram and Aboura, Sofiane, The Effect of Asymmetric Information and Transaction Costs on Asset Pricing: Theory and Test. EFMA 2003 Helsinki Meetings. Available at SSRN: https://ssrn.com/abstract=391682 or http://dx.doi.org/10.2139/ssrn.391682

Makram Bellalah (Contact Author)

Conservatoire des Arts et Metiers (CNAM) ( email )

292, rue Saint-Martin
Paris cedex 03, 75141
France

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

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