1. Information asymmetry is one party has more knowledge of the stock markets than the other party. Usually the managers of the capital markets have access to information that influences stock than the investors in the capital market. There is information misbalance which may distort capital market transactions. For example, a stock exchange broker has a friend who works in the finance department of a publicly traded company may access to the company's financial results before they are announced to the public. He may anticipate the stock price to go up and hence buy more stocks today at lower price which creates more demand and artificially increase the price.
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