Valuation and the Volatility of Financing and Investment

Jonathan Parker and Michael Fishman
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Michael Fishman: Northwestern University

No 1131, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: all projects are funded. In the region of multiplicity, the move from a pooling (socially efficient) equilibrium to a valuation (socially inefficient) equilibrium involves many features of a financial crisis: prices decline (interest spreads rise); real investment declines; unsophisticated investors leave the market (flight to quality) and sophisticated investors make profits; trust declines and due diligence increases.

Date: 2010
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