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Information costs in financial markets: evidence from the Tunisian stock market

Information costs in financial markets: evidence from the Tunisian stock market Purpose – The purpose of this paper is to discuss a widespread idea in the financial literature: information in financial markets is free. Indeed, whenever an investor wants to intervene to purchase and/or to sell, he/she faces the need to access the information, which he/she judges to ensure an optimal decision. Design/methodology/approach – The paper uses the entropy statistics in order to estimate the information cost of the assets of the Tunisian stock market over the period extending from 2002 to 2005. Findings – The obtained results show that the information costs follow a Brownian motion. This finding lends empirical support to the theoretical position that has always been adopted in the relevant literature: in finance, as in economy, the majority of the series follow a Brownian motion. Practical implications – The proposed methodology offers investors the opportunity to estimate the information cost by taking into account the quotation probability, a simple approach that can be used not only by fund managers, but also by financial market investors. Originality/value – The paper uses entropy as a relatively new tool applied in financial theory. It offers a new understanding of information cost. The paper will be of interest for financial market investors and academics. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Risk Finance Emerald Publishing

Information costs in financial markets: evidence from the Tunisian stock market

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References (32)

Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1526-5943
DOI
10.1108/15265941011071520
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to discuss a widespread idea in the financial literature: information in financial markets is free. Indeed, whenever an investor wants to intervene to purchase and/or to sell, he/she faces the need to access the information, which he/she judges to ensure an optimal decision. Design/methodology/approach – The paper uses the entropy statistics in order to estimate the information cost of the assets of the Tunisian stock market over the period extending from 2002 to 2005. Findings – The obtained results show that the information costs follow a Brownian motion. This finding lends empirical support to the theoretical position that has always been adopted in the relevant literature: in finance, as in economy, the majority of the series follow a Brownian motion. Practical implications – The proposed methodology offers investors the opportunity to estimate the information cost by taking into account the quotation probability, a simple approach that can be used not only by fund managers, but also by financial market investors. Originality/value – The paper uses entropy as a relatively new tool applied in financial theory. It offers a new understanding of information cost. The paper will be of interest for financial market investors and academics.

Journal

The Journal of Risk FinanceEmerald Publishing

Published: Aug 17, 2010

Keywords: Information management; Cost accounting; Tunisia; Stock markets

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