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7 Information Asymmetries on Financial Markets

  • Thorsten Hens
  • Marc Oliver Rieger
Chapter
  • 432 Downloads
Part of the Springer Texts in Business and Economics book series (STBE)

Abstract

There are two time periods t = 0, 1 and two states in the second period s = 1, 2. There are two consumers i = 1, 2. The first consumer is rich today and poor tomorrow, w1 = (1, 0, 0). The second is rich tomorrow and poor today, w2 = (0, 1, 1). There are two Arrow securities, i.e. \(A = \begin {pmatrix}1 & 0 \\ 0 & 1\end {pmatrix}\). The first consumer does not know which state occurs and a priori assigns equal probabilities to them. Before trading the asset the second consumer gets a signal revealing the state of the world. Both consumers have ln-utility of wealth, and no time discount rate. All this information is common knowledge. No consumer acts strategically (as if there were two types of infinitely many consumers).

References

  1. [MCWG+95]
    Andreu Mas-Colell, Michael Dennis Whinston, Jerry R Green, et al., Microeconomic theory, vol. 1, Oxford university press New York, 1995.Google Scholar
  2. [Tir10]
    Jean Tirole, The theory of corporate finance, Princeton University Press, 2010.Google Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  • Thorsten Hens
    • 1
  • Marc Oliver Rieger
    • 2
  1. 1.Department of Banking and FinanceUniversity of ZurichZürichSwitzerland
  2. 2.Department of Business AdministrationUniversity of TrierTrierGermany

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