Information Transmission in Emerging Markets: The Case of a Unique Financing Instrument
Information flows are necessary for well-functioning financial markets. However, in many emerging markets, the legal and institutional preconditions for proper information flow are not met. How do such markets respond? We argue that they respond by developing innovative information transmission mechanisms. We identify one such mechanism associated with the evolution of equity markets in South Asia. The mechanism operates through a financing instrument unique to India and Pakistan, called badla in local parlance. We develop a signaling model in which a broker-financier signals his private information to investors by choosing various levels of financing to provide in the badla market for stocks. A fully separating equilibrium exists allowing full discrimination of various types of stocks. Hence, information transmission takes place through this channel.
|Date of creation:||13 Jan 2008|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
- Berkman, Henk & Eleswarapu, Venkat R., 1998. "Short-term traders and liquidity: a test using Bombay Stock Exchange data," Journal of Financial Economics, Elsevier, vol. 47(3), pages 339-355, March.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:6714. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.