Testing Asymmetric-Information Asset Pricing Models

  title={Testing Asymmetric-Information Asset Pricing Models},
  author={Bryan Kelly and Alexander P. Ljungqvist},
We provide evidence for the importance of information asymmetry in asset pricing by using three natural experiments. Consistent with rational expectations models with multiple assets and multiple signals, we find that prices and uninformed demand fall as asymmetry increases. These falls are larger when more investors are uninformed, turnover is larger and more variable, payoffs are more uncertain, and the lost signal is more precise. Prices fall partly because expected returns become more… CONTINUE READING
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