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Pooling, Separating, and Semiseparating Equilibria in Financial Markets: Some Experimental Evidence

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Author Info
Cadsby, Charles B
Frank, Murray
Maksimovic, Vojislav

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Abstract

This study investigates experimental financial markets in which firms possess more information than do potential investors. Firms were given opportunities to undertake positive net present value projects which they could either forgo or finance by selling equity. Auctions were conducted among the investors for the right to finance the projects. When the theoretical equilibrium was unique, theory predicted well. When theory permitted pooling, separation, and semiseparation, only the more efficient pooling equilibrium was observed. The domination of the pooling equilibrium was robust to different experimental experiences by participants. When available, signals were used by good firms to distinguish themselves from bad. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 3 (1990)
Issue (Month): 3 ()
Pages: 315-42
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Handle: RePEc:oup:rfinst:v:3:y:1990:i:3:p:315-42

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  1. Potters, J & Winden, F. van, 1995. "Comparitive statics of a signaling game : an experimental study," Discussion Paper 126, Tilburg University, Center for Economic Research. [Downloadable!]
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  2. Banks, Jeffrey & Camerer, Colin & Porter, David., 1990. "An Experimental Analysis of Nash Refinements in Signaling Games," Working Papers 740, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  3. Lisa Posey & Abdullah Yavas, 2007. "Screening equilibria in experimental markets," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 32(2), pages 147-167, December. [Downloadable!] (restricted)
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  4. Dorothea Kuebler, Wieland Mueller and Hans Normann, 2004. "Job market signaling and screening: An experimental comparison," Royal Holloway, University of London: Discussion Papers in Economics 04/02, Department of Economics, Royal Holloway University of London, revised Apr 2004. [Downloadable!]
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