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Information Asymmetry, Share Mispricing and the Coordination Problem: Investor Portfolio Choice in Czech Voucher Privatization

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  • Elena Yusupova

Abstract

Voucher privatization in the Czech Republic presented a natural experiment of the ability of investors to construct their portfolios under conditions of asymmetric information and the absence of stock market prices. This paper provides a theoretical model of an optimal portfolio choice made by the investors maximizing their expected return and at the same time solving a coordination problem in a non-cooperative game with other investors. The perception of share misvaluation and private information are endogenized. The model offers an interpretation and theoretical justification of earlier empirical findings and explains the crucial role of the auctioneer, different optimal strategies for different types of investors and the redundancy of legal limits constraining ownership stakes in firms. The results provide implications for the design of voucher privatization, which should lead to more efficient share distribution and price setting.

Suggested Citation

  • Elena Yusupova, 2006. "Information Asymmetry, Share Mispricing and the Coordination Problem: Investor Portfolio Choice in Czech Voucher Privatization," CERGE-EI Working Papers wp301, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp301
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    References listed on IDEAS

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    1. John Bennett & Saul Estrin & James Maw & Giovanni Urga, 2004. "Privatisation Methods and Economic Growth in Transition Economies," Working Papers 2004.105, Fondazione Eni Enrico Mattei.
    2. Barbara G. Katz & Joel Owen, 2002. "Voucher Privatization: A detour on the road to transition?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(3), pages 553-583, November.
    3. Raj Aggarwal & Joel T. Harper, 2000. "Equity Valuation in the Czech Voucher Privatization Auctions," Financial Management, Financial Management Association, vol. 29(4), Winter.
    4. Katz, Barbara G. & Owen, Joel, 1997. "Optimal Voucher Privatization Fund Bids When Bidding Affects Firm Performance," Journal of Comparative Economics, Elsevier, vol. 24(1), pages 25-43, February.
    5. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
    6. S.J. Rassenti & V.L. Smith & R.L. Bulfin, 1982. "A Combinatorial Auction Mechanism for Airport Time Slot Allocation," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 402-417, Autumn.
    7. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
    8. Kala Krishna & Torben Tranæ s, 2002. "Allocating multiple units," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(4), pages 733-750.
    9. Jan Svejnar & Miroslav Singer, 1994. "Using vouchers to privatize an economy: the Czech and Slovak case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 43-69, March.
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    More about this item

    Keywords

    Voucher privatization; Asymmetric information; Portfolio and strategic investors; Portfolio choice; Mispricing;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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