Information-generated trade in asset markets
|Speaker:||Tarek Coury, University of Oxford|
|Date:||Friday 5 May 2006|
|Location:||Lecture Room D, Streatham Court|
Excessive trade volume in asset markets is often associated with the presence of noise or liquidity traders and used to justify assumptions in economic models which depart from those of the No Trade theorem. We show that under no trade-type assumptions, it is possible to construct equilibrium outcomes which involve arbitrarily large trade volume of assets when there are more assets than signals. Under this condition, there exist different asset portfolios which allow the same optimal income transfer across signals. These assets are not redundant because they are needed to achieve Pareto efficiency. We show that this reasoning also applies to more general economies where markets are incomplete and where traders’ beliefs do not share a restriction.