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

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  • Cadsby, Charles B
  • Frank, Murray
  • Maksimovic, Vojislav

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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Bibliographic Info

Article provided by 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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Cited by:
  1. 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.
  2. Kübler, D. & Müller, W. & Normann, H.T., 2003. "Job Market Signalling and Screening: An Experimental Comparison," Discussion Paper 2003-124, Tilburg University, Center for Economic Research.
  3. Potters, J.J.M. & Winden, F.A.A.M. van, 1996. "Comparative statics of a signaling game: An experimental study," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73374, Tilburg University.
  4. Aleksander Berentsen & Michael McBride & Guillaume Rocheteau, 2013. "Limelight on dark markets: an experimental study of liquidity and information," ECON - Working Papers 126, Department of Economics - University of Zurich.

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