1993/04/01 by Jiang Wang · 755 citations
Economics, Econometrics and Finance · #Asset (computer security) #Capital asset pricing model #Complex Systems and Time Series Analysis #Computer science #Economic theories and models #Economics #Financial Markets and Investment Strategies #Financial economics
paper · open access · doi:10.2307/2298057
published in The Review of Economic Studies 60(2), 249 (Oxford University Press)
openalex publication_date 1993/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
This paper presents a dynamic asset-pricing model under asymmetric information. Investors have different information concerning the future growth rate of dividends. They rationally extract information from prices as well as dividends and maximize their expected utility. The model has a closed-form solution to the rational expectations equilibrium. We find that existence of uninformed investors increases the risk premium. Supply shocks can affect the risk premium only under asymmetric information. Information asymmetry among investors can increase price volatility and negative autocorrelation in returns. Less-informed investors may rationally behave like price chasers.