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On the impossibility of insider trade in rational expectations equilibria

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  • Alexander Zimper

    (Department of Economics, University of Pretoria)

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

  • Alexander Zimper, 2013. "On the impossibility of insider trade in rational expectations equilibria," Working Papers 201379, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201379
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    References listed on IDEAS

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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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