Time Resolution of Risk and Asymmetric Information

An application to financial market
  • Dominique Ami
Part of the Theory and Decision Library book series (TDLB, volume 40)


As in Dow and Gorton (1995), we present a general equilibrium model of asset pricing in which profitable informed trading can occur without any «noise» added to the model. There are two periods in the model and traders are characterized by an intertemporal utility function defined on consumption. Utility functions can reflect preferences for early or late resolution of risk as defined by Kreps and Porteus (1978). Traders can acquire information about the ex-post liquidation value of risky asset payoffs either at time 0 or at time 1. We show that if traders have preferences for the early resolution of risk then they will expend resources to obtain information and they will receive compensation, unlike what the Grossman and Stiglitz’ paradox (1980) asserts.


Utility Function Time Resolution Asymmetric Information Risky Asset Late Resolution 
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Copyright information

© Springer Science+Business Media New York 1999

Authors and Affiliations

  • Dominique Ami
    • 1
  1. 1.GRID-ENS de CachanFrance

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