Valuation, Adverse Selection, and Market Collapses

Michael J. Fishman and Jonathan Parker

No 18358, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a market for funding real investment in which valuation creates information on which adverse selection can occur. Unlike in previous models, higher amounts of valuation are associated with lower market prices and so greater returns to valuation, and this strategic complementarity in the capacity to do valuation generates multiple equilibria. In this region, the equilibrium without valuation is always more efficient despite funding projects that valuation would reveal as unprofitable. Valuation equilibria look like credit crunches. A large investor can ensure the efficient equilibrium only if it can precommit to a price and, for some parameters, only if subsidized.

JEL-codes: E44 G01 G2 G28 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-cta and nep-mac
Note: AP CF EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Michael J. Fishman & Jonathan A. Parker, 2015. "Valuation, Adverse Selection, and Market Collapses," Review of Financial Studies, vol 28(9), pages 2575-2607.

Downloads: (external link)
http://www.nber.org/papers/w18358.pdf (application/pdf)

Related works:
Journal Article: Valuation, Adverse Selection, and Market Collapses (2015)
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:nbr:nberwo:18358

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w18358

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().