Information Spillovers, Gains from Trade, and Interventions in Frozen Markets

Braz Camargo, Kyungmin Kim, Benjamin Lester

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

We study government interventions in markets suffering from adverse selection. Importantly, asymmetric information prevents both the realization of gains from trade and the production of information that is valuable to other market participants. We find a fundamental tension in maximizing welfare: while some intervention is required to restore trading, too much intervention depletes trade of its informational content. We characterize the optimal policy that balances these two considerations, and explore how it depends on features of the environment. Our model can be used to study a program introduced in 2009 to restore information production in the market for legacy assets.

Original languageEnglish (US)
Pages (from-to)1291-1329
Number of pages39
JournalReview of Financial Studies
Volume29
Issue number5
DOIs
StatePublished - May 1 2016

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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