Research
Working Papers
Transaction Costs and Slow-Moving Arbitrage
Abstract. (soon)
A Dynamic Asset Pricing Model in Inelastic Markets under Trading Costs and Information Asymmetry
Abstract. I present a dynamic asset pricing model in inelastic markets, where heterogeneous traders face convex trading costs and information asymmetry regarding redistributive liquidity shocks. Under asymmetric trading costs and symmetric information, fast-moving traders competitively exert market power to increase the participation of their slow-moving counterparts. Redistributive shocks cause the asset price to deviate from its fundamental value and lead to a slow recovery with overshooting. Asymmetric trading costs result in excess volatility, short-term reversal, and longer-term momentum. Under information asymmetry, informed traders strategically trade against uninformed counterparts, creating latent fund flows. Asymmetric information can mitigate the price effects of trading costs but add price variability through additional latent fund flows. While amplifying volatility with low trading costs for the informed group, asymmetric information can dampen volatility when substantial costs constrain informed traders. Additionally, asymmetric information increases short-term reversal but reduces longer-term momentum.
Tobin's q and Investment Dynamics under Slow-Moving Capital Reallocation
Abstract. (soon)
Work in Progress