Download or read book Asymmetric Information and Liquidity Provision written by Alberto Teguia and published by . This book was released on 2015 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: The presence of information asymmetry increases the probability that a potential predator will provide liquidity rather than engaging in predatory trading during liquidation by a distressed trader. More information asymmetry is associated with lower expected losses from liquidation for the distressed trader in illiquid markets. There is a negative correlation between the degree of information asymmetry and the returns from predatory trading, which is consistent with empirical findings. These results imply that strategic traders are more likely to stabilize markets by providing liquidity when information is asymmetric. These findings highlight a cost associated with disclosure and can explain the documented rarity of illiquidity episodes in financial markets.
Download or read book Inside and Outside Liquidity written by Bengt Holmstrom and published by MIT Press. This book was released on 2013-01-11 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.
Download or read book Asymmetric Information and the Market Structure of the Banking Industry written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998-06-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. All lenders face uncertainty with regard to borrowers’ creditworthiness, but, in the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. These informational asymmetries are an important determinant of the industry structure and may represent a barrier to entry for new banks. The paper shows that, in contrast with traditional models of horizontal differentiation, the steady-state equilibrium is characterized by a finite number of banks even in the absence of fixed costs.
Download or read book Market Liquidity written by Thierry Foucault and published by Oxford University Press. This book was released on 2023 with total page 531 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Download or read book Inefficient Provision of Liquidity written by Oliver Hart and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study an economy where the lack of a simultaneous double coincidence of wants creates the need for a relatively safe asset (money). We show that, even in the absence of asymmetric information or an agency problem, the private provision of liquidity is inefficient. The reason is that liquidity affects prices and the welfare of others, and creators do not internalize this. This distortion is present even if we introduce lending and government money. To eliminate the inefficiency the government must restrict the creation of liquidity by the private sector.
Download or read book The Oxford Handbook of Entrepreneurial Finance written by Douglas Cumming and published by OUP USA. This book was released on 2012-03-22 with total page 937 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides a comprehensive picture of issues dealing with different sources of entrepreneurial finance and different issues with financing entrepreneurs. The Handbook comprises contributions from 48 authors based in 12 different countries.
Download or read book Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition written by Dimitri Vayanos and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Ownership and Asymmetric Information Problems in the Corporate Loan Market written by Lewis Gaul and published by CreateSpace. This book was released on 2015-01-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In credit markets, asymmetric information problems arise when borrowers have private information about their creditworthiness that is not observable by lenders. If these informational asymmetries do not negatively affect lenders' profitability, then they are irrelevant to lenders.
Download or read book Asymmetric Information and Financial Markets written by G. Manjunatha and published by Ary Publisher. This book was released on 2023-06-10 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This econometric analysis focuses on the relationship between asymmetric information and financial markets. The study aims to examine how the presence of asymmetric information affects market dynamics and outcomes. By utilizing advanced statistical techniques and econometric modeling, the research investigates the impact of information asymmetry on various financial market variables. The study analyzes the role of information asymmetry in influencing market efficiency, price formation, trading volume, and investor behavior. It explores how differences in information between market participants lead to market inefficiencies, such as mispricing and suboptimal trading strategies. Additionally, the research investigates the implications of asymmetric information for market liquidity, volatility, and the overall stability of financial markets. Through the econometric analysis, the study provides empirical evidence and insights into the effects of asymmetric information on financial markets. It aims to contribute to the existing literature by shedding light on the mechanisms through which information asymmetry influences market dynamics and outcomes. The findings have practical implications for investors, financial institutions, and policymakers, helping to enhance market transparency, investor protection, and the efficiency of financial markets. Overall, this econometric analysis delves into the relationship between asymmetric information and financial markets. By employing rigorous statistical techniques, it aims to understand the impact of information asymmetry on market variables, providing valuable insights for market participants and stakeholders. The research ultimately seeks to contribute to the understanding of market dynamics and inform strategies to mitigate the adverse effects of information asymmetry in financial markets.
Download or read book Asymmetric Information Corporate Finance and Investment written by R. Glenn Hubbard and published by University of Chicago Press. This book was released on 2009-05-15 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this volume, specialists from traditionally separate areas in economics and finance investigate issues at the conjunction of their fields. They argue that financial decisions of the firm can affect real economic activity—and this is true for enough firms and consumers to have significant aggregate economic effects. They demonstrate that important differences—asymmetries—in access to information between "borrowers" and "lenders" ("insiders" and "outsiders") in financial transactions affect investment decisions of firms and the organization of financial markets. The original research emphasizes the role of information problems in explaining empirically important links between internal finance and investment, as well as their role in accounting for observed variations in mechanisms for corporate control.
Download or read book Asymmetric Information in Financial Markets written by Ricardo N. Bebczuk and published by Cambridge University Press. This book was released on 2003-08-21 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asymmetric information (the fact that borrowers have better information than their lenders) and its theoretical and practical evidence now forms part of the basic tool kit of every financial economist. It is a phenomenon that has major implications for a number of economic and financial issues ranging from both micro and macroeconomic level - corporate debt, investment and dividend policies, the depth and duration of business cycles, the rate of long term economic growth - to the origin of financial and international crises. Asymmetric Information in Financial Markets aims to explain this concept in an accessible way, without jargon and by reducing mathematical complexity. Using elementary algebra and statistics, graphs, and convincing real-world evidence, the author explores the foundations of the problems posed by asymmetries of information in a refreshingly accessible and intuitive way.
Download or read book Asymmetric Information and Liquidity Constraints written by Dmytro Holod and published by . This book was released on 2006 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a novel measure of the degree of information asymmetry across firms, this study shows that information-related financial market imperfections do matter for a firm's access to external finance. Prior studies of the importance of liquidity constraints faced by nonfinancial firms have suffered from a glaring weakness. They have been based on a sample of publicly traded firms, omitting precisely those firms most likely to be liquidity constrained. Furthermore, they have tended to rely on indirect measures of the degree of information asymmetry, such as firm size. We overcome these limitations by focusing on the banking sector. Unlike the nonfinancial sector, the banking sector has balance sheet and income data available for all firms, whether or not they are publicly traded. This allows the use of a superior measure of the degree of information asymmetry across firms by distinguishing between publicly traded and non-publicly traded banks.We focus on changes in monetary policy that represent exogenous (to the banks) changes in the financing constraints they face. We find that publicly traded banks, which exhibit a lower degree of information asymmetry, are better able to overcome information-based financial market frictions, compared to the relatively opaque non-publicly traded banks, when monetary policy is tightened. Lending by the more transparent publicly traded banks is less affected by a monetary policy tightening in large part due to their relative advantage in raising external funds by issuing uninsured large time deposits. These results are obtained controlling for bank (and bank holding company) size, a dimension commonly used in the literature as the measure of the degree of firm access to external finance. Moreover, we show that the distinction between publicly traded and non-publicly traded banks dominates bank size as an indicator of the degree of access to external funds.
Download or read book Who Sees the Trades written by Rod Garratt and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Dealers, who strategically supply liquidity to traders, are subject to both liquidity and adverse selection costs. While liquidity costs can be mitigated through inter-dealer trading, individual dealers' private motives to acquire information compromise inter-dealer market liquidity. Post-trade information disclosure can improve market liquidity by counteracting dealers' incentives to become better informed through their market-making activities. Asymmetric disclosure, however, exacerbates the adverse selection problem in inter-dealer markets, in turn decreasing equilibrium liquidity provision. A non-monotonic relationship may arise between the partial release of post-trade information and market liquidity. This points to a practical concern: a strategic post-trade platform has incentives to maximize adverse selection and may choose to release information in a way that minimizes equilibrium liquidity provision.
Download or read book Asset Pricing Under Asymmetric Information written by Markus Konrad Brunnermeier and published by Oxford University Press, USA. This book was released on 2001 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: The role of information is central to the academic debate on finance. This book provides a detailed, current survey of theoretical research into the effect on stock prices of the distribution of information, comparing and contrasting major models. It examines theoretical models that explain bubbles, technical analysis, and herding behavior. It also provides rational explanations for stock market crashes. Analyzing the implications of asymmetries in information is crucial in this area. This book provides a useful survey for graduate students.
Download or read book Interbank Tiering and Money Center Banks written by Ben Craig and published by . This book was released on 2010 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Taxonomy of Individual Liquidity Provision written by Calvin J. Chiou and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using trade-level data from the Taiwan Stock Exchange, we document an asymmetric pattern of liquidity provision by individual investors who serve as de facto market makers. Specifically, individual investors, on average, provide more liquidity during market downturns. We further investigate the impact of asymmetric individual liquidity provision on market efficiency. Though being uninformed, individual investors' liquidity provision ameliorates market efficiency more during market downturns, especially for large firms and firms with less retail trading proportion. Our results suggest that individual investors provide liquidity to help those with private information correct prices towards efficient prices, in turn, enhancing market efficiency.
Download or read book Why Designate Market Makers Affirmative Obligations and Market Quality written by Hendrik Bessembinder and published by . This book was released on 2012 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: While some financial markets increasingly rely on endogenous liquidity provision by ldquo;high frequencyrdquo; traders, others also contract with ldquo;designated market makersrdquo; who commit to provide more liquidity than they would otherwise choose. We identify two reasons that such affirmative obligations can improve value. The first relies on the insight that the asymmetric information component of market-making costs comprises a transfer across traders, not a social cost to completing trades. As such, this cost dissuades efficient trading, which a restriction on spread widths encourages. Secondly, a restriction on spread widths encourages more traders to become informed, which speeds the rate at which market prices move toward true asset values. This analysis implies that designated market makers can enhance efficiency primarily when actual or perceived information asymmetries are important, not simply when liquidity is expensive or trading is sparse. As the ldquo;flash crashrdquo; of May 2010 has been attributed to the withdrawal of endogenous liquidity in response to perceived increases in information asymmetries, our analysis implies that future flash crashes can be avoided and social welfare enhanced by designating market makers.
