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 language | English (US) |
|---|---|
| Pages (from-to) | 1291-1329 |
| Number of pages | 39 |
| Journal | Review of Financial Studies |
| Volume | 29 |
| Issue number | 5 |
| DOIs | |
| State | Published - May 1 2016 |
| Externally published | Yes |
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ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
Cite this
Information Spillovers, Gains from Trade, and Interventions in Frozen Markets. / Camargo, Braz; Kim, Kyungmin; Lester, Benjamin.
In: Review of Financial Studies, Vol. 29, No. 5, 01.05.2016, p. 1291-1329.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Information Spillovers, Gains from Trade, and Interventions in Frozen Markets
AU - Camargo, Braz
AU - Kim, Kyungmin
AU - Lester, Benjamin
PY - 2016/5/1
Y1 - 2016/5/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84966614911&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84966614911&partnerID=8YFLogxK
U2 - 10.1093/rfs/hhv129
DO - 10.1093/rfs/hhv129
M3 - Article
AN - SCOPUS:84966614911
VL - 29
SP - 1291
EP - 1329
JO - Review of Financial Studies
JF - Review of Financial Studies
SN - 0893-9454
IS - 5
ER -