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Noise traders are agents whose theoretical existence has been hypothesized as a way of solving certain fundamental problems in Financial Economics. We briefly review the literature on noise traders. The is an entry for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan:...
Persistent link: https://www.econbiz.de/10012466412
version of the separation of ownership and control -- Jensen's (1986) free cash flow theory--into a dynamic equilibrium model …-building managers who prefer to invest all free cash flow rather than distributing it to shareholders. Sharefholders are aware of this …
Persistent link: https://www.econbiz.de/10012468940
'informationally efficient' prices in the economy, have no direct role in the allocation of equity capital since managers have … efficiency? We present a model of the stock market in which: (i) managers have discretion in making investments and must be given … the right incentives; and (ii) stock market traders may have important information that managers do not have about the …
Persistent link: https://www.econbiz.de/10012473644
This paper presents a simple general equilibrium model of asset pricing in which profitable informed trading can occur without any "noise" added to the model. It shows that models of profitable informed trading must restrict the portfolio choices of uninformed traders: in particular, they cannot...
Persistent link: https://www.econbiz.de/10012474643
In efficient markets the price should reflect the arrival of private information. The mechanism by which this is accomplished is arbitrage. A privately informed trader will engage in costly arbitrage, that is, trade on his knowledge that the price of an asset is different from the fundamental...
Persistent link: https://www.econbiz.de/10012474644
In recent years, there has been a large literature on how stock exchange specialists set prices when there are investors who know more about the stock than they do. An important assumption in this literature is that there are *liquidity traders* who are equally likely to buy or sell for...
Persistent link: https://www.econbiz.de/10012475127