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On the impossibility of insider trade in rational expectations equilibria

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  • Zimper, Alexander

Abstract

Existing no trade results are based on the common prior assumption (CPA). This paper identifies a strictly weaker condition than the CPA under which speculative trade is impossible in a rational expectations equilibrium (REE). As our main finding, we demonstrate the impossibility of speculative asset trade in an REE whenever an insider is involved who knows the asset's true value. To model insider trade as an equilibrium phenomenon an alternative equilibrium concept than the REE is thus required.

Suggested Citation

  • Zimper, Alexander, 2014. "On the impossibility of insider trade in rational expectations equilibria," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 109-118.
    • Handle: RePEc:eee:ecofin:v:28:y:2014:i:c:p:109-118
    DOI: 10.1016/j.najef.2014.02.004
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    References listed on IDEAS

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    1. Alexander Zimper, 2013. "Speculative Trade Equilibria with Incorrect Price Anticipations," Working Papers 201335, University of Pretoria, Department of Economics.
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    More about this item

    Keywords

    Levin-Coburn report; Goldman Sach; Insider trade; Rational expectations;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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