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Information Aggregation, Security Design, and Currency Swaps

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  • Mark Grinblatt
  • Bhagwan Chowdhry
  • David Levine

Abstract

A security design model shows that multinational firms needing to finance their operations should issue different securities to investors in different countries in order to aggregate their disparate information about domestic and foreign cash flows. However, if the firm becomes bankrupt, investors may face uncertain costs of reorganizing assets in a foreign country and thus ma

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File URL: http://icfpub.som.yale.edu/publications/2617
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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm38.

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Date of creation: 01 Feb 2002
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Handle: RePEc:ysm:somwrk:ysm38

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References

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  1. José M. Marín & Rohit Rahi, 1996. "Information revelation and market incompleteness," Economics Working Papers 145, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Ohashi Kazuhiko, 1995. "Endogenous Determination of the Degree of Market-Incompleteness in Futures Innovation," Journal of Economic Theory, Elsevier, vol. 65(1), pages 198-217, February.
  3. Litzenberger, Robert H, 1992. " Swaps: Plain and Fanciful," Journal of Finance, American Finance Association, vol. 47(3), pages 831-50, July.
  4. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
  5. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  7. Pesendorfer Wolfgang, 1995. "Financial Innovation in a General Equilibrium Model," Journal of Economic Theory, Elsevier, vol. 65(1), pages 79-116, February.
  8. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  9. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September.
  10. Franklin Allen & Douglas Gale, . "Optimal Security Design," Rodney L. White Center for Financial Research Working Papers 26-87, Wharton School Rodney L. White Center for Financial Research.
  11. Ross, Stephen A, 1989. " Institutional Markets, Financial Marketing, and Financial Innovation," Journal of Finance, American Finance Association, vol. 44(3), pages 541-56, July.
  12. Kyle, Albert S, 1989. "Informed Speculation with Imperfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 317-55, July.
  13. Boot, Arnoud W A & Thakor, Anjan V, 1993. " Security Design," Journal of Finance, American Finance Association, vol. 48(4), pages 1349-78, September.
  14. Madan, Dilip & Soubra, Badih, 1991. "Design and Marketing of Financial Products," Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 361-84.
  15. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-78, May.
  16. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
  17. Cooper, Ian A & Mello, Antonio S, 1991. " The Default Risk of Swaps," Journal of Finance, American Finance Association, vol. 46(2), pages 597-620, June.
  18. Peter DeMarzo & Darrell Duffie, 1999. "A Liquidity-Based Model of Security Design," Econometrica, Econometric Society, vol. 67(1), pages 65-100, January.
  19. Anderson, Robert M. & Sonnenschein, Hugo, 1982. "On the existence of rational expectations equilibrium," Journal of Economic Theory, Elsevier, vol. 26(2), pages 261-278, April.
  20. Franklin Allen & Andrew Winton, . "Corporate Financial Structure, Incentives and Optimal Contracting (Reprint 049)," Rodney L. White Center for Financial Research Working Papers 15-94, Wharton School Rodney L. White Center for Financial Research.
  21. Rahi, Rohit, 1996. "Adverse Selection and Security Design," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 287-300, April.
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Cited by:
  1. Salvatore Cantale & Dmitry Lukin, 2012. "Multiple-Project Financing with Informed Trading," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 16(1), pages 1-28, Spring.
  2. Goswami, Gautam & Nam, Jouahn & Shrikhande, Milind M., 2004. "Why do global firms use currency swaps?: Theory and evidence," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 315-334.
  3. Gersbach, Hans & Uhlig, Harald, 2006. "Debt contracts and collapse as competition phenomena," Journal of Financial Intermediation, Elsevier, vol. 15(4), pages 556-574, October.

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