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Information asymmetry and the speed of adjustment: debasements in the mid-sixteenth century

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  • Ling-Fan Li

Abstract

type="main"> This article examines the impact of information asymmetry on the movement of London–Antwerp exchange rates against the backdrop of the Great Debasement of 1544–51. The case of the revaluation of gold coins in the Habsburg Netherlands in 1539, about which the sovereign and the public possessed similar information, is used as the benchmark to judge how far the speed of adjustment was affected by information asymmetry. This article is also part of the recent literature that estimates the degree of financial market integration in late medieval and early modern Europe. In the framework of the threshold autoregressive model, the speed of adjustment and the transaction costs associated with arbitrage are estimated, and the results are judged using the speed of communication as a benchmark since the flow of information played a critical role in financial arbitrage. The results reveal that the sixteenth-century London–Antwerp exchange markets were already as integrated as that during the late nineteenth century, but information asymmetry severely disturbed the effectiveness of exchange arbitrage.

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  • Ling-Fan Li, 2015. "Information asymmetry and the speed of adjustment: debasements in the mid-sixteenth century," Economic History Review, Economic History Society, vol. 68(4), pages 1203-1225, November.
  • Handle: RePEc:bla:ehsrev:v:68:y:2015:i:4:p:1203-1225
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    File URL: http://hdl.handle.net/10.1111/ehr.12110
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    1. Aslanidis, Nektarios & Herranz-Lonc�n, Alfonso & Nogues-Marco, Pilar, 2017. "The making of a national currency. Spatial transaction costs and money market integration in Spain (1825-1874)," CEPR Discussion Papers 12453, C.E.P.R. Discussion Papers.
    2. repec:bla:ehsrev:v:71:y:2018:i:4:p:1227-1248 is not listed on IDEAS

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