•   •   •   •

Download the Paper (335 K, PDF file) - August 1, 2004 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
A rational-expectations equilibrium with positive demand for financial information does exist under fully revealing asset price-contrary to a wide-held conjecture. Generalizing the common additive signal-return model with CARA utility to the family of distributions with moment generating functions, this paper shows that individual investors en- dowed with an average portfolio demand information in equilibrium if they can adjust portfolio size. More information diminishes the ex- pected excess return of a risky asset so that investors who only have a choice of portfolio composition or whose asset endowments strongly differ from the average portfolio are worse off. Under fully revealing price, information market equilibria both with and without informa- tion acquisition are Pareto efficient.

SUGGESTED CITATION:
Marc-Andreas Muendler, "The Existence of Informationally Efficient Markets When Individuals Are Rational" (August 1, 2004). Department of Economics, UCSD. Paper 2004-09.
http://repositories.cdlib.org/ucsdecon/2004-09