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A Theoretic And Empirical Research About The Effect Of Asymmetrical Information On Assets Returns

Posted on:2005-06-25Degree:MasterType:Thesis
Country:ChinaCandidate:J ZhaoFull Text:PDF
GTID:2156360152468408Subject:Finance
Abstract/Summary:PDF Full Text Request
Because of the evolution of asset prices in market, market microstructure focuses on how the liquidity and the price discovery based on asymmetric information affect asset price formation. The latter is the emphasis of this paper. In an asymmetric information world, the informed traders are at an advantage relative to the uninformed, then the uninformed face information risk. A simple model with partially revealing equilibrium proves that traders demand higher compensation to hold the asset with private information.During empirically researching on Shanghai stock market, statistic results show risk premium for asymmetric information exists as market capitalization is used to measure asymmetry. In empirical model, explanatory variables consist of beta, market capitalization (SIZE), the ratio of the book value of equity to the market value of equity (BE/ME) and the proxy variable turnover. The coefficients are estimated in a panel data model with fixed effect. The results show that the proxy's coefficient is significantly positive except market falling seriously. The estimations of unobserved fixed effect regularly distribute among samples and they are always opposite with the estimation of the coefficients of market capitalization within the sample time. It seemingly implies an offsetting relation between both.The research makes a contribution to explain the anomalies appearing in the stock market. It shows that the effective operation of the securities market's function of allocating economic resources depends on normative laws and environment that reduce the incompleteness and the asymmetry of information.
Keywords/Search Tags:asymmetric information, information risk, turnover, panel data model, fixed effect
PDF Full Text Request
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