Information-generated trade in asset markets


Speaker:Tarek Coury, University of Oxford
Date: Friday 5 May 2006
Time: 16:15
Location: Lecture Room D, Streatham Court

Further details

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.