TY  - JOUR
AU  - Dow,James
AU  - Gorton,Gary
TI  - Profitable Informed Trading in a Simple General Equilibrium Model of Asset Pricing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4315
PY  - 1993
Y2  - April 1993
UR  - http://www.nber.org/papers/w4315
L1  - http://www.nber.org/papers/w4315.pdf
N1  - Author contact info:
James Dow
London Business School
Sussex Place
Regent's Park, London
NW1 4SA  UK
Tel: 4402072625050 Ext3317
Fax: 4402077243317
E-Mail: jdow@london.edu

Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu
AB  - This paper presents a simple general equilibrium model of asset pricing in which profitable informed trading can occur without any "noise" added to the model. It shows that models of profitable informed trading must restrict the portfolio choices of uninformed traders: in particular, they cannot buy the market portfolio. In this model, profitable informed trading lowers the welfare of all agents when compared across steady states.
ER  -