A dynamic asymmetric information equilibrium

In a market with a risk-free rate and a traded dividend stream driven by one latent variable, several agents make consumption and investment decisions based on public prices and on individual private signals. We derive in... [ view full abstract ]

In a market with a risk-free rate and a traded dividend stream driven by one latent variable, several agents make consumption and investment decisions based on public prices and on individual private signals. We derive in closed form the asymptotic equilibrium price of the dividend claim, assuming that each investor has constant absolute risk aversion. Price volatility depends on the volatility of dividends and on the volatility of the estimate of the latent variable, which is revealed to all agents through prices.