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Title: Informed speculation and the organisation of financial markets
Author: Dennert, Jurgen
Awarding Body: London School of Economics and Political Science (University of London)
Current Institution: London School of Economics and Political Science (University of London)
Date of Award: 1990
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The thesis deals with several aspects of the impact of informed speculation on financial markets. It consists of four chapters. Chapter 1 gives a general discussion of the welfare effects of insider trading, and investigates whether insider trading should be prohibited. The following chapters are concerned with more specific questions of the organisation and regulation of financial markets. Chapter 2 investigates the performance of dealership markets in the presence of informed speculation. It is shown that informed trading creates externalities which might render markets with several competing market makers less liquid than a market with a monopolist specialist. Chapter 3 deals with a different effect of insider trading on secondary markets. It is argued that insider trading influences the allocation of risk between different classes of investors. The premature resolution of uncertainty due to insider trading makes prices more volatile and more informative. The effects of these two opposed effects on ex-ante investment are ambiguous: both more and less investment may occur. Chapter 4 investigates a dynamic asset pricing model with informed speculation and noise trading. The properties of the steady state equilibria in a overlapping generations economy with infinite horizon are characterized. It is shown that noise trading leads to feedback effects of the kind that expectations of a high price volatility become self-stabilizing. The effects of asymmetric information and the early release of information are discussed and related to the results of the preceding chapters.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available