Information asymmetry and information failure: disclosure problems in complex financial markets

2011 ◽  
pp. 95-112 ◽  
Author(s):  
Steven L. Schwarcz
Keyword(s):  
Financial Markets ◽  
Information Asymmetry

scholarly journals Discount, transparency and announcements effects of equity rights offerings: international evidence

2021 ◽  
Author(s):  
Nils-Christian Bobenhausen ◽  
Astrid Juliane Salzmann
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Capital Market ◽  
Announcement Effect ◽  
Announcement Effects ◽  
Market Transparency ◽  
International Evidence ◽  
Negative Effect ◽  
Rights Offering ◽  
High Information

AbstractEquity rights offerings and their respective announcement effects have been studied extensively in the literature. Our study expands upon these studies and focuses on those announcement effects and the relation between the discount of an equity rights offering and the announcement effect. Previous theoretical and empirical analyses show that firms can signal their quality via the discount in an equity rights offering and demonstrate a negative relation between the discount and the announcement effect. We argue that this link is only relevant in environments where signalling is possible and necessary. These are financial markets with a particularly low level of capital market transparency, i.e. high information asymmetry. We calculate announcement effects for an international sample of equity rights offerings and show that the negative effect of the discount on announcement effects can only be observed in environments with a low capital market transparency. Hence, our study estimates announcement effects across several different countries and is thus among the first to analyse signalling considerations for equity rights offerings in different transparency environments.

scholarly journals Measuring Information Asymmetry in Large Active Firms on the Tehran Stock Exchange

2016 ◽  
Vol 63 (3) ◽  
pp. 333-346
Author(s):  
Mostafa Shamsoddini ◽  
Mohammad N. Shahiki Tash ◽  
Farhad Khodadad-Kashi
Keyword(s):  
Firm Performance ◽  
Financial Markets ◽  
Information Asymmetry ◽  
Stock Markets ◽  
Stock Exchange ◽  
Composite Index ◽  
Financial Information ◽  
Investment Strategies ◽  
Information Measuring ◽  
Informational Environment

In financial markets, transparency of financial information is one of the most effective variables of investment strategies. Information asymmetry can seriously affect firm performance on the stock exchange and firms with a poor informational environment can lose the interest of investors. Reducing information asymmetry can have an important effect on firm performance on the stock exchange. Firms may lack a clear informational environment in the market because of the emerging conditions governing the Tehran Stock Exchange. Because larger and more active firms on the Tehran Stock Exchange provide more information, measuring the informational environment of these firms provides an overview of information asymmetry. The present study calculated the information asymmetry in these firms using the PIN and FE indices. The inconsistent results provided by these indices prompted the authors to offer a new index that is a composite of the PIN and FE that can better explain information asymmetry in developing market such as Asian stock markets. The results show that the new composite index, by using the mechanisms of the PIN and FE indices, provides a better outcome. The new composite index shows that the Tosee Melli Inv (TMEL1), Mobarakeh Steel (FOLD1), Iran Mobil Tele (HMRZ1), Saipa (SIPA1) and I.N.C. Ind. (MSMI1) firms have a better informational environment on the Tehran Stock Exchange.

scholarly journals Executive compensation and investor clientele

2009 ◽  
Vol 6 (4) ◽  
pp. 272-292 ◽  
Author(s):  
Feifei Li ◽  
Avanidhar Subrahmanyam
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Executive Compensation ◽  
Opportunity Costs ◽  
Empirical Tests ◽  
The Cost

We provide a setting where due to a lack of sophistication, possibly arising from high opportunity costs of learning about accounting conventions and financial markets, nave (unsophisticated) investors are unable to decipher true executive compensation accurately. Expected compensation is therefore higher when such investors form a more significant clientele in the market for a firm’s stock. Our model further suggests that increased information asymmetry between informed and uninformed traders may deter the entry of uninformed investors and keep executive compensation in check. Technologies that lower the cost of trading facilitate entry of relatively unsophisticated investors and raise expected compensation. In general, such compensation can be reduced through requirements that increase disclosure transparency. Empirical tests provide support to the key implication of the model that indirect executive compensation is higher in stocks with higher liquidity, which are likely to have greater unsophisticated investor participation.

scholarly journals Main lessons for finance of the 2007-2009 crisis

2010 ◽  
Vol 7 (4) ◽  
pp. 62-65
Author(s):  
Tom Berglund
Keyword(s):  
Financial Crisis ◽  
Economic Analysis ◽  
Financial Markets ◽  
Information Asymmetry ◽  
Asset Values ◽  
The Future ◽  
Role Of Information

This paper discusses issues that should receive an increased weight in how finance is being taught in the future, based on the experiences of the financial crisis of 2007-2009. The three specific lessons are: the role of basic economic analysis in understanding the foundations of asset values, the shortcomings of diversification as a method to reduce risks, and the increased role of information asymmetry in crisis stricken financial markets.

Do Algorithmic Traders Improve Liquidity When Information Asymmetry is High?

2020 ◽  
pp. 2050015
Author(s):  
Archana Jain ◽  
Chinmay Jain ◽  
Revansiddha Basavaraj Khanapure
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Natural Experiment ◽  
Equity Markets ◽  
Algorithmic Trading ◽  
Unanswered Question ◽  
Earnings Announcement ◽  
Liquidity Provision ◽  
High Information

Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) show that algorithmic traders improve liquidity in equity markets. An equally important and unanswered question is whether they improve liquidity when information asymmetry is high. We use days surrounding earnings announcement as a period of high information asymmetry. First, we follow Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) to use introduction of NYSE autoquote as a natural experiment. We find that increased algorithmic trading (AT) as a result of NYSE autoquote does not improve liquidity around earnings announcements. Next, we use trade-to-order volume % and cancel rate as a proxy for algorithmic trading and find that abnormal spreads surrounding the days of earnings announcement are significantly higher for stocks with higher AT. Our findings indicate that algorithmic traders reduces their role of liquidity provision in markets when information asymmetry is high. These findings shed further light on the role of liquidity provision by algorithmic traders in the financial markets.

Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid-19 Crisis

2020 ◽  
Vol 17 (3-4) ◽  
pp. 386-418 ◽  
Author(s):  
Gianfranco Siciliano ◽  
Marco Ventoruzzo
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Stock Markets ◽  
Abnormal Returns ◽  
Equity Market ◽  
Short Selling ◽  
Market Quality ◽  
Policy Goals ◽  
The World ◽  
European Stock Markets

During the recent COVID-19 pandemic crisis, stock markets around the world have witnessed an abrupt decline in security prices and an unprecedented increase in security volatility. In response to a week of financial turmoil on the main European stock markets, some market regulators in Europe, including France, Austria, Italy, Spain, Greece, and Belgium, passed temporary short-selling bans in an attempt to stop downward speculative pressures on the equity market and stabilize and maintain investors’ confidence. This paper examines the effects of these short-selling bans on market quality during the recent pandemic caused by the spread of COVID-19. Our results suggest that during the crisis, banned stocks had higher information asymmetry, lower liquidity, and lower abnormal returns compared with non-banned stocks. These findings confirm prior theoretical arguments and empirical evidence in other settings that short-selling bans are not effective in stabilizing financial markets during periods of heightened uncertainty. In contrast, they appear to undermine the policy goals market regulators intended to promote.

scholarly journals The Mysterious Ethics of High-Frequency Trading

2016 ◽  
Vol 26 (1) ◽  
pp. 1-22 ◽  
Author(s):  
Ricky Cooper ◽  
Michael Davis ◽  
Ben Van Vliet
Keyword(s):  
Moral Hazard ◽  
Financial Markets ◽  
Information Asymmetry ◽  
High Frequency ◽  
Price Discovery ◽  
Recent Trend ◽  
Trading Strategies ◽  
High Frequency Trading

ABSTRACT:The ethics of high frequency trading are obscure, due in part to the complexity of the practice. This article contributes to the existing literature of ethics in financial markets by examining a recent trend in regulation in high frequency trading, the prohibition of deception. We argue that in the financial markets almost any regulation, other than the most basic, tends to create a moral hazard and increase information asymmetry. Since the market’s job is, at least in part, price discovery, we argue that simplicity of regulation and restraint in regulation are virtues to a greater extent than in other areas of finance. This article proposes criteria for determining which high-frequency trading strategies should be regulated.

scholarly journals Information Asymmetry in Financial Markets: Challenges and Threats

2018 ◽  
Vol 14 (4) ◽  
pp. 1156-1167 ◽  
Author(s):  
V.P. Ivanitsky ◽  
V.A. Tatyannikov
Keyword(s):  
Financial Markets ◽  
Information Asymmetry

scholarly journals Research on Government’s Implementing Inclusive Financial Mechanism from the Perspective of Behavior Contract

2019 ◽  
Vol 3 (1) ◽  
pp. 42
Author(s):  
Xinkai Deng
Keyword(s):  
Social Capital ◽  
Financial Markets ◽  
Information Asymmetry ◽  
Moral Education ◽  
Active Role ◽  
Necessary Condition ◽  
Financing Constraints ◽  
Reference Dependence ◽  
Role Of Government ◽  
The Government

By introducing reciprocal borrowers and lenders, positive social capital formed by reciprocal expectations can ease financing constraints. Information asymmetry has a significant impact on the relationship between reciprocal expectations and financing constraints. Lack of reciprocal expectation is a necessary condition for government intervention. The role of government is to promote the formation and growth of positive social capital, reduce negative social capital, activate favorable reference dependence and avoid adverse reference dependence. Specific measures are: direct investment, subsidy/ taxation, administrative orders, alleviation of information asymmetry in financial markets and moral education. Policy Suggestions: the government should pay attention to fostering reciprocal expectations. The development of Inclusive Finance mainly depends on market forces. An important part of it is the government lender who plays an active role in activating the favorable reference dependence. The government should alleviate the information asymmetry in financial markets, reduces the formation of negative social capital, and pays attention to the two sides and limitation of moral education.

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