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Information Asymmetries on Financial Markets

In: Financial Economics

Author

Listed:
  • Thorsten Hens

    (University of Zurich)

  • Marc Oliver Rieger

    (University of Trier)

Abstract

So far we have assumed common knowledge about the (state-contingent) pay-offs of assets. Imagine now that some agents know the payoffs better than others. Then – besides intertemporal substitution intertemporal substitution, risk sharing and betting on the occurrence of the states of the world – a seller of an asset might want to sell it because he knows it has very low pay-offs. Anticipating this no agent would buy at a price allowing the seller to make a profit and ultimately no transaction is made. In the subprime mortgage crisis this aspect of asset markets became overwhelming so that asset markets broke down completely.

Suggested Citation

  • Thorsten Hens & Marc Oliver Rieger, 2016. "Information Asymmetries on Financial Markets," Springer Texts in Business and Economics, in: Financial Economics, edition 2, chapter 7, pages 277-285, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-49688-6_7
    DOI: 10.1007/978-3-662-49688-6_7
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    Cited by:

    1. Chih-Hsiung Chang, 2022. "Information Asymmetry and Card Debt Crisis in Taiwan," Bulletin of Applied Economics, Risk Market Journals, vol. 9(2), pages 123-145.

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