(In)Efficient Asset Trade, Differential Borrowing Cost And Central Bank Policy
Event details
| Date | 03.11.2015 |
| Hour | 12:00 › 13:00 |
| Speaker | Tobias DIELER (Postdoc, SFI@EPFL) |
| Location | |
| Category | Conferences - Seminars |
This paper studies how differential borrowing cost can lead to inefficient real investment due to the feedback effect of asset trade. In addition, it designs a Central Bank policy which can alleviate the inefficiency. Therefore, I consider a model in which a large asset trader has superior information about a firm's investment opportunity. The large trader, through his purchase of assets from uninformed shareholders, signals (separating equilibrium) or does not signal (pooling equilibrium) available information. Consequently, the asset price reflects available information in a separating equilibrium and does not in a pooling equilibrium. The firm's manager bases the investment decision on the asset price. If the asset price is (not) revealing available information, the manager adopts an (in)efficient level of investment. The welfare analysis shows that information revelation is always valuable and hence the separating equilibrium welfare dominates the pooling equilibrium. Then there exists a Central Bank policy which decreases the large trader's gains from asymmetric information such that the inefficient pooling equilibrium ceases to exist.
Practical information
- Informed public
- Invitation required
- This event is internal