Information-Based Trade

50 Pages Posted: 5 Feb 2007 Last revised: 10 Apr 2008

See all articles by Philip Bond

Philip Bond

University of Washington - Michael G. Foster School of Business

Hulya Eraslan

Rice University

Date Written: October 15, 2007

Abstract

We study the possibility of trade for purely informational reasons. We depart from previous analyses (e.g. Grossman and Stiglitz 1980 and Milgrom and Stokey 1982) by allowing the final payoff of the asset being traded to depend on an action taken by its eventual owner. We characterize conditions under which equilibria with trade exist. We demonstrate that our model also applies to a portfolio allocation setting, and use our results to show that trade is possible whenever there is sufficient uncertainty about market betas.

Suggested Citation

Bond, Philip and Eraslan, Hulya, Information-Based Trade (October 15, 2007). UBC Winter Finance Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=961107 or http://dx.doi.org/10.2139/ssrn.961107

Philip Bond

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Hulya Eraslan (Contact Author)

Rice University ( email )

Department of Economics MS-22
Rice University P.O Box 1892
Houston, TX Texas 77251-1892
United States
7133483453 (Phone)

HOME PAGE: http://he6.web.rice.edu/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
128
Abstract Views
1,589
rank
281,185
PlumX Metrics