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. [ABSTRACT FROM AUTHOR]