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Spanish Economic Review

, Volume 8, Issue 4, pp 285–299 | Cite as

Rationally mispriced assets in equilibrium

  • Bernhard Eckwert
  • Andreas Szczutkowski
Regular Article
  • 15 Downloads

Abstract

We present a simple model of trading in a financial market where agents are asymmetrically informed and information is transmitted through the price system. We characterize the equilibrium for this economy and show that ‘rational mispricing’ of assets occurs if the price system fails to reveal the insider information accurately. It is argued that the communication of wrong information through equilibrium prices is compatible with full rationality on the part of the investors and may explain deviations from the efficient markets hypothesis.

Keywords

Asymmetric information Rational expectations Mispricing Efficiency 

JEL Classification

D43 D51 D8 

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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of Business Administration and EconomicsBielefeld UniversityBielefeldGermany

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