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Asset Opacity and Liquidity

Author

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  • Stenzel, A.
  • Wagner, W.B.

    (Tilburg University, School of Economics and Management)

Abstract

We present a model that links the opacity of an asset to its liquidity. While low opacity assets are liquid, intermediate levels of opacity provide incentives for investors to acquire private information, causing adverse selection and illiquidity. High opacity, however, benefits liquidity by reducing the value of a unit of private information to investors. The cross-section of bid-ask spreads of U.S. firms is shown to be consistent with this hump-shape relationship between opacity and illiquidity. Our analysis suggests that uniform disclosure standards may be suboptimal; efficient disclosure can instead be achieved through a two-tier standard system or by subsidizing voluntary disclosure.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stenzel, A. & Wagner, W.B., 2013. "Asset Opacity and Liquidity," Other publications TiSEM 36533529-29b8-4e85-9abd-0, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:36533529-29b8-4e85-9abd-0f261e20ac40
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    References listed on IDEAS

    as
    1. Fecht, Falko & Wagner, Wolf, 2007. "The marketability of bank assets and managerial rents: implications for financial stability," Discussion Paper Series 2: Banking and Financial Studies 2007,12, Deutsche Bundesbank.
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    5. Stenzel, André, 2018. "Security design with interim public information," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 113-130.
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    More about this item

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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