Information Asymmetries on Financial Markets

Thorsten Hens and Marc Oliver Rieger
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Thorsten Hens: University of Zurich
Marc Oliver Rieger: University of Trier

Chapter 7 in Financial Economics, 2016, pp 277-285 from Springer

Abstract: Abstract So far we have assumed common knowledge about the (state-contingent) pay-offs of assets. Imagine now that some agents know the payoffs better than others. Then – besides intertemporal substitution intertemporal substitution, risk sharing and betting on the occurrence of the states of the world – a seller of an asset might want to sell it because he knows it has very low pay-offs. Anticipating this no agent would buy at a price allowing the seller to make a profit and ultimately no transaction is made. In the subprime mortgage crisis this aspect of asset markets became overwhelming so that asset markets broke down completely.

Keywords: Subprime; Pooling Contract; Efficient Market Hypothesis; Good Type; Rothschild-Stiglitz Model (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-3-662-49688-6_7

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