Investor´s Distrust and the Marketing of New Financial Assets

Enrique Kawamura

No 23, Working Papers from Universidad de San Andres, Departamento de Economia

Abstract: In this paper I present a model where a financial intermediary decides to open new security markets and offer them to boundedly rational investors. I show first that, if consumers have downward biased priors about payoffs, then no trade in the new securities may be verified. It is shown that no endogenous variable serves as a credible signal. Hence, only exogenous signals allows inference by investors. Incentives to disclosure depend upon its cost. I analyze this last issue with two-part tariff schemes.

Keywords: Bounded rationality; Financial innovation; Incomplete markets (search for similar items in EconPapers)
JEL-codes: D52 D84 G20 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2000-03, Revised 2004-04
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Published in Quarterly Review of Economics and Finance, April 2004, Volume 44, pages 265-295

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Persistent link: https://EconPapers.repec.org/RePEc:sad:wpaper:23

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