Abstract
As in Down 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 can consume a unique good and trade a risky asset similar to an stock index. They are characterized by an intertemporal utility function defined on consumption at dates 0 and 1. Utility functions reflect preference for early 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 demonstrate that if a trader has a preference for the early resolution of risk then he expends resources to obtain information but receives compensation, unlike the result of Grossman and Stiglitz (1980).
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© 1997 Springer-Verlag Berlin Heidelberg
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Ami, D.C. (1997). Preferences for Early Resolution of Risk in Financial Markets with Asymmetric Information. In: Zopounidis, C. (eds) New Operational Approaches for Financial Modelling. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-59270-6_21
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DOI: https://doi.org/10.1007/978-3-642-59270-6_21
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-7908-1043-1
Online ISBN: 978-3-642-59270-6
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