Download or read book Essays on Asymmetric Information and Trading Constraints written by György Venter and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contains three essays exploring the asset pricing implications of asymmetric information and trading constraints. Chapter 1 studies how short-sale constraints affect the informational efficiency of market prices and the link between prices and economic activity. I show that under short-sale constraints security prices contain less information. However, short-sale constraints increase the informativeness of prices to some agents who learn about the quality of an investment opportunity from market prices and have additional private information. This, in turn, can lead to higher allocative efficiency in the real economy. My result thus implies that the decrease in average informativeness due to short-sale constraints can be more than compensated by an increase in informativeness to some agents. In Chapter 2, I develop an equilibrium model of strategic arbitrage under wealth constraints. Arbitrageurs optimally invest into a fundamentally riskless arbitrage opportunity, but if their capital does not fully cover losses, they are forced to close their positions. Strategic arbitrageurs with price impact take this constraint into account and try to induce the fire sales of others by manipulating prices. I show that if traders have similar proportions of their capital invested in the arbitrage opportunity, they behave cooperatively. However, if the proportions are very different, the arbitrageur who is less invested predates on the other. The presence of other traders thus creates predatory risk, and arbitrageurs might be reluctant to take large positions in the arbitrage opportunity in the first place, leading to an initially slow convergence of prices. Chapter 3 (joint with Dömötör Pálvölgyi) studies the uniqueness of equilibrium in a textbook noisy rational expectations economy model a la Grossman and Stiglitz (1980). We provide a very simple proof to show that the unique linear equilibrium of their model is the unique equilibrium when allowing for any continuous price function, linear or not. We also provide an algorithm to create a (non-continuous) equilibrium price that is different from the Grossman-Stiglitz price.

Download or read book Essays on Asymmetric Information and Markets written by Paula Cristina Ramada and published by . This book was released on 1997 with total page 162 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Asymmetric Information in Financial Markets written by Bradyn Mitchel Breon-Drish and published by . This book was released on 2011 with total page 194 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the effects of asymmetric information and learning on asset prices and investor decision-making. Two main themes run through the work. The first is the linkage between investor decisions and the information used to make those decisions; that is, portfolio choices reflect the nature and quality of available information. The second theme is the interaction between investor learning and price informativeness. The information held by individual investors is reflected in market prices through their trading decisions, and prices thus transmit this information to other investors. In the first chapter, Asymmetric Information in Financial Markets: Anything Goes, I study a standard Grossman and Stiglitz (1980) noisy rational expectations economy, but relax the usual assumption of the joint normality of asset payoff and supply. The primary contribution is to characterize how the equilibrium relation between price and fundamentals depends on the way in which investors react to the information contained in price. My solution approach dispenses with the typical "conjecture and verify" method, which allows me to analytically solve an entire class of previously intractable nonlinear models that nests the standard model. This simple generalization provides a purely information-based channel for many common phenomena. In particular, price jumps and crashes may arise endogenously, purely due to learning effects, and observation of the net trading volume may be valuable for investors in the economy as it can provide a refinement of the information conveyed by price. Furthermore, the value of acquiring information may be non-monotonic in the number of informed traders, leading to multiple equilibria in the information market. I show also that the relation between investor disagreement and returns is ambiguous and depends on higher moments of the return distribution. In short, many of the standard results from noisy rational expectations models are not robust. I introduce monotone likelihood ratio conditions that determine the signs of the various comparative statics, which represents the first demonstration of the implicit importance of the MLRP in the noisy rational expectations literature. In the second chapter Do Fund Managers Make Informed Asset Allocation Decisions?, a joint work with Jacob S. Sagi, we derive a dynamic model in which mutual fund managers make asset allocation decisions based on private and public information. The model predicts that the portfolio market weights of better informed managers will mean revert faster and be more variable. Conversely, portfolio weights that mean revert faster and are more variable should have better forecasting power for expected returns. We test the model on a large dataset of US mutual fund domestic equity holdings and find evidence consistent with the hypothesis of timing ability, especially at three- to 12-month forecasting horizons. Nevertheless, whatever timing ability may be reflected in portfolio weights does not appear to translate into higher realized returns on funds' portfolios.

Download or read book Three Essays on Heterogeneity Insurance and Asset Pricing written by Tsvetanka Karagyozova and published by . This book was released on 2007 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the Effects of Asymmetric Information written by Mario Ramirez Basora and published by . This book was released on 2012 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: It can be easily argued that most, if not all, real economic settings are asymmetric in nature. Particularly, it is often the case that one or several agents possess more or better information than the rest when agreeing upon an economic transaction. Although the information economics revolution of the 1970s laid out the majority of the theoretical foundations, the effects of asymmetric information are subtle and have not been studied in some very interesting contexts, which motivate this thesis. In the first essay, which is based on joint work with Antonio Bento and Benjamin Ho, we study the problem of an uninformed regulator who wishes to use a voluntary price instrument under varying degrees of uncertainty, specifically in the context of a carbon offset market. In this scenario, a regulator offers private land owners a contract that compensates them for producing carbon offsets while minimizing adverse selection and welfare losses. The model shows that monitoring should decrease as the uncertainty of offset quality decreases, but should increase as uncertainty over agricultural productivity increases. Also, in response to those who argue that the problem of additionality is so large that carbon offsets should not be allowed in carbon regulation, the model quantifies the amount of additionality and finds that even in the case of a regulator with no information, welfare is improved by allowing offset contracts. Finally, the model offers guidance for calculating the optimal offset price as a function of the regulator's information. The second essay consists of a cardinal tournament used by a representative firm to choose its next CEO. Candidates are managers of different types: they are heterogeneous over levels of ability and risk aversion. The managers have private information about their ability. In this context, a two-dimensional solution set of levels of ability and risk aversion corresponding to each possible mean of cash flow realization is identified. Using two different specifications (CARA preferences with normally distributed cash flows, and CRRA preferences with log-normally distributed cash flows), the trade-off between managerial ability and risk aversion is found to be characterized by a concave function. Furthermore, for better levels of technology, the relative importance of risk aversion with respect to ability increases, while for worse levels of technology, the reverse holds. Finally, in the third essay, using a model based on the optimal consumption and investment models from the operations research literature, I study how the CEO characteristics studied in Chapter 2 impact dividend policy and the longrun evolution of the firm. Specifically, when assuming CRRA preferences and a concave trade-off between ability and risk aversion, I find that the optimal dividend policy of the CEO is non-monotonic with respect to risk aversion. In other words, CEOs with a combination of both high (or low) ability and risk aversion, will pay out lower dividend yields than CEOs with a more balanced combination of ability and risk aversion. Furthermore, firm survival is a function of the dividend yield and is also non-monotonic: while the probability of firm survival converges to either zero or one as risk aversion (and, by extension, ability) converges to either zero or infinity, there exists a range for which lower investment counteracts a potentially higher dividend yield, and the resulting change in the probability of survival is ambiguous.

Download or read book Three Essays on Asymmetric Information in Imperfect Financial Markets written by Uptal Bhattacharya and published by . This book was released on 1990 with total page 198 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on asymmetric information and financial market theory written by Ricardo J. Rodriguez and published by . This book was released on 1986 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Economic Theory in Asymmetric Information written by Naoki Kojima and published by . This book was released on 2001 with total page 173 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis deals with three different subject matters from the aspect of asymmetric information, especially adverse selection : relationship banking in the framework of competition amongst banks ; initial public offering ( conflicts of interests between the issuer, the underwriter and investors ; mechanism of optimal pricing by a monopolistic seller in the presence of budget constraints on the part of buyers and proposition of new approach to this bi-dimensional asymmetric information problem.

Download or read book Essays on Asymmetric Information in Asset Trading Models written by Ian Lindsay Gale and published by . This book was released on 1986 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on financial markets with asymmetric information written by Robert L. Heinkel and published by . This book was released on 1983 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the economics of asymmetric information written by Russell Wade Cooper and published by . This book was released on 1982 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on Information and Asset Pricing written by Xin Zhou and published by . This book was released on 2008 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: The second essay examines the effect of a short-sale constraint on risky asset price in a rational expectations model with asymmetric information. Imposing a short-sale constraint creates two competing effects. On one hand, it reduces the risky asset supply and exerts upward pressure on asset price. On the other hand, it forces investors with negative views on asset payoff to be sidelined. The latter effect can reduce the informational efficiency of asset price, which in turn decreases investors' demand for the risky asset. Consequently, imposing a short-sale constraint can bias equilibrium asset price in either direction depending on which effect dominates. Empirical analysis using short interest and institutional ownership data suggests that an increase in short interest relative to shares outstanding for individual stocks reduces informational efficiency measured by the probability of information-based trading and leads to lower risk adjusted stock returns. The effect of short-sale constraint on return volatility is ambiguous.

Download or read book Essays on Strategic Trading Asymmetric Information and Asset Pricing written by David John Peterson and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Adem Dugalic and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation explores effects of trading frictions due to the over-the-counter nature of some financial markets on asset prices, trading activity, market structure and efficiency. The first chapter analyses how the introduction of post-trade transparency affected dealers' trading and market liquidity in the secondary U.S. corporate bond market. Using the TRACE dataset with a novel variable identifying different dealers in the market, I quantify dealers' centrality in the context of the trading network and estimate a differential response to the reform across dealers of different centrality. I show that the introduction of transparency reduced the estimated bid-ask spreads of peripheral dealers by about 24 basis points, while spreads of core dealers remained unaffected. The trading volume of high-yield bonds fell by 6.7% for core dealers and by an insignificant amount for peripheral dealers. There was no effect on dealers' capital commitment and inventory behavior. To rationalize these findings, I propose a dynamic model of trade with asymmetric information and search frictions that gives rise to endogenous heterogeneity in dealers' trading activity and explains the empirical evidence. Three mechanisms through which transparency may affect the market are outlined: marketwise reduction in adverse selection, higher demand for immediacy by informed traders, and interaction between liquidity and informed traders. Further effects of transparency and welfare implications in the context of the model are discussed. The second chapter is co-authored with Diego Torres Patino. We study how short sale constraints on the lending side of the market affect asset prices in an equilibrium model with multiple assets. We endow investors with heterogeneous beliefs in order to generate short selling demand. We obtain a CAPM-like equation that links asset-specific excess returns with the market equity premium. In the presence of short sale constraints in the market, the model gives rise to asset-specific alphas that are explained by both asset-specific and market-wide short sale constraints; unconstrained stocks have higher risk-adjusted expected returns relative to the market portfolio, whereas the opposite holds for constrained stocks. In the absence of short sale constraints, the model reduces to the standard CAPM. We test the model using extensive data on short interest and borrow fees. The model is able to empirically explain asset prices for 10 portfolios sorted by the degree to which they are short sale constrained, as opposed to the CAPM and factor models which produce unexplained alphas that are significantly different from zero for the portfolios consisting of highly constrained stocks. In the final chapter, I study financial intermediation in a model of entry and competition between an over-the-counter market and exchange. The over-the-counter market is characterized by search, bargaining and capacity to intermediate trade of securities customized to individual investors. The exchange can support trading of a subset of standardized securities at prices quoted to all investors. I compute explicitly asset prices and volume at each trading venue and analyze efficiency of the resulting market structure. Bargaining power of investors in the OTC market and cost associated with trading non-customized securities at the exchange have ambiguous effects on the relative volume across the trading venues. The market outcome is inefficient due to bargaining in the OTC market and imperfect competition of specialist at the exchange. The model is well suited for quantitative analysis provided sufficiently detailed trading data from both types of trading venues.

Download or read book Essays on Portfolio Optimization and ESG Ratings under Risk Constraints and Incomplete Information written by Janke, Oliver and published by Lehmanns Media. This book was released on with total page 244 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, we analyze various problems of dynamic portfolio optimization as well as green capital requirements under risk constraints and incomplete information. First, we examine the problem of optimal expected utility under the constraint of a utility-based shortfall risk measure in an incomplete market. The existence and uniqueness of an optimal solution to the problem are shown using a Lagrange multiplier and duality methods. Second, we consider the optimization problem under various levels of the investor’s information. By using martingale representation theorems, we demonstrate the existence and uniqueness of optimal solutions, which differ in their market dynamics. Third, we analyze the effects of green- and brownwashing on banks’ lending to firms, on the regulator’s deposit insurance subsidy, and on carbon emissions under different green capital requirement functions. Furthermore, we show that green capital requirements may compromise financial stability.

Download or read book Essays on Balance of Payments Constrained Growth written by John McCombie and published by Routledge. This book was released on 2004-03-26 with total page 351 pages. Available in PDF, EPUB and Kindle. Book excerpt: This impressive collection explores the relationship between a country's balance of payments and their rate of economic growth.

Download or read book Essays on Asymmetric Information in International Finance written by Aaron Hong Wai Low and published by . This book was released on 1992 with total page 394 pages. Available in PDF, EPUB and Kindle. Book excerpt: