Download or read book Remedies to Informational Asymmetries in Stock Markets written by Peter-Jan Engelen and published by Intersentia nv. This book was released on 2005 with total page 4 pages. Available in PDF, EPUB and Kindle. Book excerpt: Like many other markets, stock markets are characterised by asymmetric information. If investors cannot distinguish high-quality from low-quality securities, they will value all securities as average resulting in the well known market for lemons. This decreases the allocative efficiency and social welfare by guiding resources to the least good investment opportunities. How can high-quality listed companies communicate with stock markets to distinguish themselves from low-quality listed companies? Although proponents of mandatory disclosure rules in securities markets will answer this question with far-reaching governmental regulation, it is jumping to conclusions and skipping devices that signal the true quality of the investment opportunities to the stock market. This book analyses the functioning of stock markets, in particular the dissemination of price-sensitive information on these markets. In order to evaluate the legal rules governing the dissemination of information from an economic perspective, an operational framework is needed to assess the current disclosure regulation with respect to allocative efficiency. The book replaces vague legal goals of securities regulation, such as investors' protection, by financial economic concepts, such as market efficiency and market liquidity. To enhance allocative efficiency, the book analyses the relevancy of mandatory disclosure rules, the use of trading halts in disseminating information during the opening hours of a stock exchange, the use of selective disclosure and the regulation of insider trading.

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 Corporate Finance Under Asymmetric Information written by Ejike Ezejiofor and published by GRIN Verlag. This book was released on 2014-11-18 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2014 in the subject Economics - Finance, , course: MBA and Engineering, language: English, abstract: The specter of decreased economic activities, financial crisis, unbecoming ethical standards have in the recent past and fore going, characterized asymmetric information on corporate finance. The consequences normally have a ricochet effect and can be generally catastrophic to normal economic activities to mention the least. This paper considers scenario’s where information asymmetry was prevalent or may have had its effects play out. The typical investor mindset and the opportunity cost associated with the preferred capital structure of the capitalizing process were mentioned. A basis for proper appreciation of the concept – Corporate finance under asymmetric information was initiated here, with a detailed explanation of corporate finance and its components, this was succeeded by a summary of scenarios were asymmetric information were prevalent and an intelligent look was also taken at asymmetric information between insiders and investors and the concomitant lemon problem, where the effects were carefully highlighted in a progression to the level of severity - Market breakdown and costly signaling. The fact that asymmetric information has been widely recognized as bad and generally viewed in a negative light must warrant it being viewed with a high level of seriousness. It is widely known that while lot of effort have been put into stemming the tides of the consequences of asymmetric information, a lot of effort too, have been dedicated to innovation and risk assessment, to capture the interest of investors, who have been affected by the consequences of asymmetric information. These may have formed a veritable platform for a recent paper by Pierre Barbaroux (2014), that elucidated the rise of innovation and innovative entrepreneurs based on the management of asymmetric information. An attempt has in any case, been made here to suggest efforts at marginalizing the negative impacts of asymmetric information and also remedies at reducing the far reaching impacts on the lenders and the aggregate economic activity in general.

Download or read book The Role of Informational Asymmetries in Financial Markets and the Real Economy written by Victoria Magdalena Vanasco and published by . This book was released on 2014 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: The stability of national and, increasingly more often, the global economy relies on well-functioning financial markets. Households' consumption and saving decisions, firms' investment choices, and governments' financing strategies critically depend on the stability of financial markets. These markets, however, are composed of individuals and institutions that may have different objectives, information sets, and beliefs, making them a very complex object that we do not fully comprehend. Motivated by this, my dissertation focuses on understanding how informational asymmetries and belief heterogeneity impact financial markets, and therefore, the macro economy. More specifically, this dissertation explores the sources of informational asymmetries among market participants. How do different financial market structures provide incentives for private information acquisition? Is information acquisition desirable? What types of policies can be implemented to increase liquidity and "discipline" in financial markets? Could business cycles be related to information or belief cycles? I tackle these questions from three separate angles. First, I study how alternative market designs bring forth different levels of private information generation, "market discipline," and liquidity. Second, I investigate how information sets of key market participants are determined. Finally, I focus on how information and belief fluctuations may affect key macroeconomic variables and economic fluctuations. In Chapter 1, ``Information Acquisition vs. Liquidity in Financial Markets," I propose a parsimonious framework to study markets for asset-backed securities (ABS). These markets play an important role in providing lending capacity to the banking industry by allowing banks to sell the cashflows of their loans and thus recycle capital and reduce the riskiness of their portfolios. In the financial crash of 2008, however, in which certain ABS played a substantial role, we witnessed a collapse in the issuance of all ABS classes. Given the importance of these markets for the real economy, policy makers in the US and Europe have geared their efforts towards reviving them. A good framework to think about these markets is imperative when thinking about financial regulation. The contribution of this chapter is to propose a model that captures the two main problems that have been shown to be present in the practice of securitization. First, the increase in securitization has led to a decline in lending standards, suggesting that liquid markets for ABS reduce incentives to issue good quality loans. Second, securitizers have used private information about loan quality when choosing which loans to securitize, indicating that a problem of asymmetric information is present in ABS markets. A natural question then arises: how should ABS be designed to provide incentives to issue good quality loans and, at the same time, to preserve liquidity and trade in these markets? To address this question, I propose a framework to study ABS where both incentives and liquidity issues are considered and linked through a loan issuer's information acquisition decision. Loan issuers acquire private information about potential borrowers, use this information to screen loans, and later design and sell securities backed by these loans when in need of funds. While information is beneficial ex-ante when used to screen loans, it becomes detrimental ex-post because it introduces a problem of adverse selection that hinders trade in ABS markets. The model matches key features of these markets, such as the issuance of senior and junior tranches, and it predicts that when gains from trade in ABS markets are `sufficiently' large, information acquisition and loan screening are inefficiently low. There are two channels that drive this inefficiency. First, when gains from trade are large, a loan issuer is tempted ex-post to sell a large portion of its cashflows and thus does not internalize that lower retention implements less information acquisition. Second, the presence of adverse selection in secondary markets creates informational rents for issuers holding low quality loans, reducing the value of loan screening. This suggests that incentives for loan screening not only depend on the portion of loans retained by issuers, but also on how the market prices the issued tranches. Turning to financial regulation, I characterize the optimal mechanism and show that it can be implemented with a simple tax scheme. The obtained results, therefore, contribute to the recent debate on how to regulate markets for ABS. In Chapter 2, I present joint work with Matthew Botsch, ``Learning by Lending, Do Banks Learn?" where we investigate how banks form their information sets about the quality of their borrowers. There is a vast empirical and theoretical literature that points to the importance of borrower-lender relationships for firms' access to credit. In this chapter, we investigate one particular mechanism through which long-term relationships might improve access to credit. We hypothesize that while lending to a firm, a bank receives signals that allow it to learn and better understand the firm's fundamentals; and that this learning is private; that is, it is information that is not fully reflected in publicly-observable variables. We test this hypothesis using a dataset for 7,618 syndicated loans made between 1987 and 2003. We construct a variable that proxies for firm quality and is unobservable by the bank, so it cannot be priced when the firm enters our sample. We show that the loading on this factor in the pricing equation increases with relationship time, hinting that banks are able to learn about firm quality when they are in an established relationship with the firm. Our finding is robust to controlling for market-wide learning about firm fundamentals. This suggests that a significant portion of bank learning is private and is not shared by all market participants. The results obtained in this study underpin one of the main assumptions of the model presented in Chapter 1: that banks have a special ability to privately acquire valuable information about potential borrowers. While the model is static, the data suggests that the process of lending and of information acquisition is a dynamic one. Consistent with this, the last chapter of this dissertation studies the macroeconomic implications of dynamic learning by financial intermediaries. Chapter 3 presents joint work with Vladimir Asriyan titled ``Informed Intermediation over the Cycle." In this paper, we construct a dynamic model of financial intermediation in which changes in the information held by financial intermediaries generate asymmetric credit cycles as the one observed in the data. We model financial intermediaries as ''expert'' agents who have a unique ability to acquire information about firm fundamentals. While the level of ''expertise'' in the economy grows in tandem with information that the ''experts'' possess, the gains from intermediation are hindered by informational asymmetries. We find the optimal financial contracts and show that the economy inherits not only the dynamic nature of information flow, but also the interaction of information with the contractual setting. We introduce a cyclical component to information by supposing that the fundamentals about which experts acquire information are stochastic. While persistence of fundamentals is essential for information to be valuable, their randomness acts as an opposing force and diminishes the value of expert learning. Our setting then features economic fluctuations due to waves of ``confidence'' in the intermediaries' ability to allocate funds profitably.

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 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 Disrupting Finance written by Theo Lynn and published by Springer. This book was released on 2018-12-06 with total page 194 pages. Available in PDF, EPUB and Kindle. Book excerpt: This open access Pivot demonstrates how a variety of technologies act as innovation catalysts within the banking and financial services sector. Traditional banks and financial services are under increasing competition from global IT companies such as Google, Apple, Amazon and PayPal whilst facing pressure from investors to reduce costs, increase agility and improve customer retention. Technologies such as blockchain, cloud computing, mobile technologies, big data analytics and social media therefore have perhaps more potential in this industry and area of business than any other. This book defines a fintech ecosystem for the 21st century, providing a state-of-the art review of current literature, suggesting avenues for new research and offering perspectives from business, technology and industry.

Download or read book Moral Hazard in Health Insurance written by Amy Finkelstein and published by Columbia University Press. This book was released on 2014-12-02 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: Addressing the challenge of covering heath care expenses—while minimizing economic risks. Moral hazard—the tendency to change behavior when the cost of that behavior will be borne by others—is a particularly tricky question when considering health care. Kenneth J. Arrow’s seminal 1963 paper on this topic (included in this volume) was one of the first to explore the implication of moral hazard for health care, and Amy Finkelstein—recognized as one of the world’s foremost experts on the topic—here examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and her own research, including a 2008 Health Insurance Experiment in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction by Joseph P. Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow. “Reads like a fireside chat among a group of distinguished, articulate health economists.” —Choice

Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.

Download or read book Information Asymmetries in Developing Country Financing written by Mr.George C. Anayotos and published by International Monetary Fund. This book was released on 1994-07-01 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the impact of information asymmetries on developing country financing and considers alternative techniques to reduce the adverse implications of such asymmetries. Following an introduction, Section II examines in general terms the role of information in financial markets and analyzes the incentive and risk sharing properties of alternative financial contracts. Information asymmetries which are present in domestic finance are more prevalent in international finance, in particular in developing country financing. Section III reviews measures aiming to resolve information asymmetries. Borrowing and creditor country regulations and policies, as well as innovative contractual agreements help to resolve a range of issues related to information asymmetries. However, despite their contribution, residual problems remain unresolved. The international financial institutions, and in particular the Fund, have an important role to play in alleviating information asymmetries.

Download or read book Intermediate Microeconomics written by Patrick M. Emerson and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Solutions to Financial Economics written by Thorsten Hens and published by Springer Nature. This book was released on 2019-10-25 with total page 211 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book offers a concise introduction to the field of financial economics and presents, for the first time, recent behavioral finance research findings that help us to understand many puzzles in traditional finance. Tailor-made for master’s and PhD students, it includes tests and exercises that enable students to keep track of their progress. Parts of the book can also be used at the bachelor level.

Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2000 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.

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 Efficiency and Anomalies in Stock Markets written by Wing-Keung Wong and published by Mdpi AG. This book was released on 2022-02-17 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis believes that it is impossible for an investor to outperform the market because all available information is already built into stock prices. However, some anomalies could persist in stock markets while some other anomalies could appear, disappear and re-appear again without any warning. A Special Issue on "Efficiency and Anomalies in Stock Markets" will be devoted to advancements in the theoretical development of market efficiency and anomaly in the Stock Market, as well as applications in Stock Market efficiency and anomalies.

Download or read book Financial Markets and Financial Crises written by R. Glenn Hubbard and published by University of Chicago Press. This book was released on 1991-08-13 with total page 420 pages. Available in PDF, EPUB and Kindle. Book excerpt: Warnings of the threat of an impending financial crisis are not new, but do we really know what constitutes an actual episode of crisis and how, once begun, it can be prevented from escalating into a full-blown economic collapse? Using both historical and contemporary episodes of breakdowns in financial trade, contributors to this volume draw insights from theory and empirical data, from the experience of closed and open economies worldwide, and from detailed case studies. They explore the susceptibility of American corporations to economic downturns; the origins of banking panics; and the behavior of financial markets during periods of crisis. Sever papers specifically address the current thrift crisis—including a detailed analysis of the over 500 FSLIC-insured thrifts in the southeast—and seriously challenge the value of recent measures aimed at preventing future collapse in that industry. Government economists and policy makers, scholars of industry and banking, and many in the business community will find these timely papers an invaluable reference.