Information acquisition and financial intermediation

Nina Boyarchenko

No 571, Staff Reports from Federal Reserve Bank of New York

Abstract: Informational advantages of specialists relative to households lead to disagreement between the two in an intermediated market. Although households can acquire additional signals to reduce the informational asymmetry, the additional information is costly, making it rational for households to limit the accuracy of the signals they observe. I show that this leads the equity capital constraint to bind more frequently, making the asset prices in the economy more volatile unconditionally. When disagreement between households and specialists is high, however, return volatility decreases. I find empirical evidence consistent with these predictions.

Keywords: financial intermediation; rational inattention; disagreement (search for similar items in EconPapers)
JEL-codes: E44 G00 G12 G19 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cta and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr571.html Full text (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr571.pdf (application/pdf)

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:fip:fednsr:571

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().