Special Issue "Information and market efficiency"

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (15 May 2015)

Special Issue Editor

Guest Editor
Prof. Dr. Georges Dionne

Department of Finance, HEC Montréal, 3000, Chemin de la Côte-Sainte-Catherine Montréal (Québec), Canada
Website | E-Mail
Interests: risk management for private and social risks; microeconomic theory under uncertainty (financial contracts, insurance contracts); asymmetric information (moral hazard and adverse selection); economics of health services; regulation in transportation and the environment

Special Issue Information

Dear Colleagues,

Information problems prevail in all markets, but their empirical analysis is fairly recent, particularly in finance. Many researchers still embrace the theorem that all information is contained in transaction prices. Others believe that asymmetric information creates advantages for some market participants, and that its presence may justify market regulation. The most recent and popular case concerns the information advantage that some traders procure on different exchanges because of the speed of their network and computers. Another example goes back to the recent financial crisis, when some bankers were less than transparent about their true motivations. An over the counter transaction is a third example. This Special Issue aims to address the role of information asymmetry in the design of market regulation, with an emphasis on financial markets, including banking and insurance.

Prof. Dr. Georges Dionne
Guest Editor

Manuscript Submission Information

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Keywords

  • information asymmetry
  • market efficiency
  • empirical evidence
  • market regulation
  • financial markets
  • banking
  • insurance

Published Papers (5 papers)

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Research

Open AccessArticle Optimal Form of Retention for Securitized Loans under Moral Hazard
Received: 10 August 2017 / Revised: 14 September 2017 / Accepted: 18 October 2017 / Published: 21 October 2017
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Abstract
We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect [...] Read more.
We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect the default probability and the conditional loss distribution. We show that the optimal form of retention must be proportional to the pool default loss even in the absence of systemic risk when the originator can affect the conditional loss given default rate, yet the current regulations propose a constant retention rate. Full article
(This article belongs to the Special Issue Information and market efficiency)
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Open AccessArticle Information-Based Trade in German Real Estate and Equity Markets
Risks 2015, 3(4), 573-598; https://doi.org/10.3390/risks3040573
Received: 15 May 2015 / Accepted: 25 November 2015 / Published: 7 December 2015
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Abstract
This paper employs four established market microstructure measures on information-based trade in financial markets. A set of German mid and small caps is used to analyze potential differential information content in real estate stocks compared to other asset classes. After linking substantially lower [...] Read more.
This paper employs four established market microstructure measures on information-based trade in financial markets. A set of German mid and small caps is used to analyze potential differential information content in real estate stocks compared to other asset classes. After linking substantially lower amounts of information-based trade in real estate stocks to higher liquidity premia, it is found that the evolution of the information content in real estate and other assets follows similar trends. Consequently, interdependence is tested for rolling time windows, revealing strong informational links between real estate and other assets. Particularly, small caps, financials, as well as companies offering consumer goods and services show a close relationship to real estate. Depending on the choice of the measure of information-based trade, up to 75% of the variation in the information content in real estate shares is related to other asset classes, pointing to the notion of high dependence. Full article
(This article belongs to the Special Issue Information and market efficiency)
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Open AccessArticle Risk Classification Efficiency and the Insurance Market Regulation
Risks 2015, 3(4), 445-454; https://doi.org/10.3390/risks3040445
Received: 29 June 2015 / Accepted: 21 September 2015 / Published: 25 September 2015
Cited by 2 | PDF Full-text (340 KB) | HTML Full-text | XML Full-text
Abstract
Given that the insurance market is characterized by asymmetric information, its efficiency has traditionally been based to a large extent on risk classification. In certain regulations, however, we can find restrictions on these differentiations, primarily the ban on those considered to be “discriminatory”. [...] Read more.
Given that the insurance market is characterized by asymmetric information, its efficiency has traditionally been based to a large extent on risk classification. In certain regulations, however, we can find restrictions on these differentiations, primarily the ban on those considered to be “discriminatory”. In 2011, following the European Union Directive 2004/113/EC, the European Court of Justice concluded that any gender-based discrimination was prohibited, meaning that gender equality in the European Union had to be ensured from 21 December 2012. Another restriction was imposed by EU and national competition regulation on the exchange of information considered as anti-competitive behavior. This paper aims to contribute to the recent policy debate in the EU, evaluating the negative economic consequences of these regulatory restrictions in terms of market efficiency. Full article
(This article belongs to the Special Issue Information and market efficiency)
Open AccessArticle Monopolistic Insurance and the Value of Information
Risks 2015, 3(3), 277-289; https://doi.org/10.3390/risks3030277
Received: 17 April 2015 / Accepted: 10 July 2015 / Published: 24 July 2015
Cited by 1 | PDF Full-text (489 KB) | HTML Full-text | XML Full-text
Abstract
The value of information regarding risk class for a monopoly insurer and its customers is examined in both symmetric and asymmetric information environments. A monopolist always prefers contracting with uninformed customers as this maximizes the rent extracted under symmetric information while also avoiding [...] Read more.
The value of information regarding risk class for a monopoly insurer and its customers is examined in both symmetric and asymmetric information environments. A monopolist always prefers contracting with uninformed customers as this maximizes the rent extracted under symmetric information while also avoiding the cost of adverse selection when information is held asymmetrically. Although customers are indifferent to symmetric information when they are initially uninformed, they prefer contracting with hidden knowledge rather than symmetric information since the monopoly responds to adverse selection by sharing gains from trade with high-risk customers when low risks are predominant in the insurance pool. However, utilitarian social welfare is highest when customers are uninformed, and is higher when information is symmetric rather than asymmetric. Full article
(This article belongs to the Special Issue Information and market efficiency)
Open AccessArticle Double Crowding-Out Effects of Means-Tested Public Provision for Long-Term Care
Risks 2015, 3(1), 61-76; https://doi.org/10.3390/risks3010061
Received: 3 December 2014 / Accepted: 4 February 2015 / Published: 25 February 2015
Cited by 1 | PDF Full-text (669 KB) | HTML Full-text | XML Full-text
Abstract
Publicly provided long-term care (LTC) insurance with means-tested benefits is suspected to crowd out either private saving or informal care. This contribution predicts crowding-out effects for both private saving and informal care for policy measures designed to relieve the public purse from LTC [...] Read more.
Publicly provided long-term care (LTC) insurance with means-tested benefits is suspected to crowd out either private saving or informal care. This contribution predicts crowding-out effects for both private saving and informal care for policy measures designed to relieve the public purse from LTC expenditure such as more stringent means testing and increased taxation of inheritance. These effects result from the interaction of a parent who decides on the amount of saving in retirement and a caregiver who decides on the effort devoted to informal care which lowers the probability of admission to a nursing home. Double crowding-out effects are also found to be the consequence of exogenous influences, notably a higher opportunity cost of caregiving. Full article
(This article belongs to the Special Issue Information and market efficiency)
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