Investor´s Distrust and the Marketing of New Financial Assets
AbstractIn this paper I present a model where a financial intermediary decides to open new security markets and offer them to boundedly rational investors. I show first that, if consumers have downward biased priors about payoffs, then no trade in the new securities may be verified. It is shown that no endogenous variable serves as a credible signal. Hence, only exogenous signals allows inference by investors. Incentives to disclosure depend upon its cost. I analyze this last issue with two-part tariff schemes.
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Bibliographic InfoPaper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 23.
Length: 30 pages
Date of creation: Mar 2000
Date of revision: Apr 2004
Publication status: Published in Quarterly Review of Economics and Finance, April 2004, Volume 44, pages 265-295
Bounded rationality; Financial innovation; Incomplete markets;
Other versions of this item:
- Kawamura, Enrique, 2004. "Investors's distrust and the marketing of new financial assets," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(2), pages 265-295, May.
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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