Asymmetric Information and Liquidity Provision
Event details
| Date | 02.02.2016 |
| Hour | 12:00 › 13:00 |
| Speaker | Alberto Teguia (PhD Student, Rice University) |
| Location | |
| Category | Conferences - Seminars |
The presence of information asymmetry increases the probability that a potential predator will provide liquidity rather than engaging in predatory trading during liquidation by a distressed trader.
More information asymmetry is associated with greater expected gains from liquidation for the distressed trader. There is a negative correlation between the degree of information asymmetry and 5 the returns from predatory trading, which is consistent with empirical findings. These results imply that strategic traders are more likely to stabilize markets by providing liquidity when information is asymmetric. These findings highly a cost associated with disclosure and can explain the documented rarity of illiquidity episodes in financial markets
More information asymmetry is associated with greater expected gains from liquidation for the distressed trader. There is a negative correlation between the degree of information asymmetry and 5 the returns from predatory trading, which is consistent with empirical findings. These results imply that strategic traders are more likely to stabilize markets by providing liquidity when information is asymmetric. These findings highly a cost associated with disclosure and can explain the documented rarity of illiquidity episodes in financial markets
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