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The effect of asymmetric information and transaction costs on asset pricing: theory and tests

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  • Makram Bellalah

    (CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908 - UPJV - Université de Picardie Jules Verne)

  • Sofiane Aboura

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper presents a capital asset pricing model in the presence of asymmetric information and transaction costs. The model is a generalized version of Merton's (1987) model and Black's (1974) model. Empirical tests show a negative relation between the expected rate of return and the shadow costs of incomplete information. The results in this paper have the potential to explain the home bias equity in a domestic and an international context.

Suggested Citation

  • Makram Bellalah & Sofiane Aboura, 2003. "The effect of asymmetric information and transaction costs on asset pricing: theory and tests," Post-Print hal-01526167, HAL.
    • Handle: RePEc:hal:journl:hal-01526167
    Note: View the original document on HAL open archive server: https://hal.science/hal-01526167
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    References listed on IDEAS

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