Costless Signalling in Financial Markets

Gunter Franke

Journal of Finance, 1987, vol. 42, issue 4, 809-22

Abstract: A costless, fully-revealing, signaling equilibrium is derived from two easily understandable conditions. The outsider-rationality condition states that the outsiders relate the price that they offer to pay for a security inversely to the supply of this security that they interpret as a quality signal. The no-arbitrage condition requires that the marginal exchange rate for two securities be the same in both primary and secondary markets. The se conditions restrict the firm's financing policy and have strong im plications for the valuation of securities and of the total firm. A c ostless signaling equilibrium is obtained. Copyright 1987 by American Finance Association.

Date: 1987
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-1082%2819870 ... O%3B2-B&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:42:y:1987:i:4:p:809-22

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().