7 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

A chapter in Solutions to Financial Economics, 2019, pp 39-46 from Springer

Abstract: Abstract There are two time periods t = 0, 1 and two states in the second period s = 1, 2. There are two consumers i = 1, 2. The first consumer is rich today and poor tomorrow, w 1 = (1, 0, 0). The second is rich tomorrow and poor today, w 2 = (0, 1, 1). There are two Arrow securities, i.e. A = 1 0 0 1 $$A = \begin {pmatrix}1 & 0 \\ 0 & 1\end {pmatrix}$$ . The first consumer does not know which state occurs and a priori assigns equal probabilities to them. Before trading the asset the second consumer gets a signal revealing the state of the world. Both consumers have ln-utility of wealth, and no time discount rate. All this information is common knowledge. No consumer acts strategically (as if there were two types of infinitely many consumers).

Date: 2019
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DOI: 10.1007/978-3-662-59889-4_7

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