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Information Transmission and Micro-structure rents in Emerging Markets

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  • Siddiqi, Hammad

Abstract

This paper offers a first ever theoretical study of a unique financing instrument associated with prominent emerging equity markets in South Asia. The instrument known as badla, in local parlance, has two interesting aspects, which have been ignored thus far. Firstly, it may serve as an information transmission mechanism and can be thought of as an institutional response to information gaps in the emerging markets. Secondly, it creates new types of rents, called “market microstructure” rents for certain market players. These rents are then exploited to gain control of the governing boards of equity markets. Consequently, institutional inertia is created which hinders the badly needed reform process.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15452.

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Date of creation: 10 Feb 2009
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Handle: RePEc:pra:mprapa:15452

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Keywords: Information transmission; Signaling; Microstructure rents; Linked games; Institutional inertia;

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  1. Sudipto Bhattacharya, 1979. "Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 259-270, Spring.
  2. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, American Finance Association, vol. 40(4), pages 1031-51, September.
  3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(2), pages 187-221, June.
  4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  5. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Jamshed Y. Uppal & Inayat U. Mangla, 2006. "Market Volatility, Manipulation, and Regulatory Response: A Comparative Study of Bombay and Karachi Stock Markets," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 45(4), pages 1071-1083.
  7. Berkman, Henk & Eleswarapu, Venkat R., 1998. "Short-term traders and liquidity: a test using Bombay Stock Exchange data," Journal of Financial Economics, Elsevier, Elsevier, vol. 47(3), pages 339-355, March.
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