Article Abstract:
This paper analyzes asset pricing in a partially segmented market where citizens of a small country are allowed to hold only their domestic securities, whereas the rest of the investors ("foreigners") are essentially allowed to hold all securities. In this market setting it may occur that the citizens of the small country are willing to pay less for their domestic securities than are the foreign investors. The paper derives equilibrium required rates of return for different investors in this market setting which perfectly occurred in Finland and tests this equilibrium model using data from the Finnish stock market. Empirical results are consistent with the hypotheses derived from the model. (Reprinted by permission of the publisher.)
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Article Abstract:
Trading losses associated with information asymmetries can be mitigated by designing securities which split the cash flows of underlying assets. These securities, which can arise endogenously, have values that do not depend on the information known only to informed agents. Bank debt (deposits) is an example of this type of liquid security which protect relatively uninformed agents, and we provide a rationale for deposit insurance in this context. High-grade corporate debt and government bonds are other examples, implying that a money market mutual fund-based payments system may be an alternative to one based on insured bank deposits. (Reprinted by permission of the publisher.)
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Article Abstract:
A theory of trading volume is developed. The theory is based on two assumptions: that market agents revise their prices in a frequent and idiosyncratic manner, and that potential trading partners randomly encounter each other. The model is then used to establish the ways in which information affects trading volume. The volume of trading normally increases when informational events occur, continues beyond the period of the informational event, and is reduced by costly markets.
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