Asset Opacity and Liquidity

A. Stenzel, W.B. Wagner

Research output: Working paperDiscussion paperOther research output

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Abstract

Abstract: We consider a model of private information acquisition in which the cost of information depends on an asset's opacity. The model generates a hump-shaped relationship between opacity and the equilibrium amount of private information. In particular, the incentives to acquire information are largest for assets of intermediate opacity; such assets hence display low liquidity in the secondary market due to adverse selection. We also show that costly information acquisition generates incentives to source more correlated assets in the economy, as correlation reduces duplication of information costs. Our ndings have implications for the design of nancial regulation which aim at promoting transparency and reducing correlation in the fi nancial system.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages36
Volume2013-066
Publication statusPublished - 2013

Publication series

NameCentER Discussion Paper
Volume2013-066

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Opacity
Liquidity
Assets
Information acquisition
Incentives
Private information
Information costs
Adverse selection
Costly information
Secondary market
Transparency
Costs

Keywords

  • endogenous information acquisition
  • opacity
  • asset liquidity

Cite this

Stenzel, A., & Wagner, W. B. (2013). Asset Opacity and Liquidity. (CentER Discussion Paper; Vol. 2013-066). Tilburg: Finance.
Stenzel, A. ; Wagner, W.B. / Asset Opacity and Liquidity. Tilburg : Finance, 2013. (CentER Discussion Paper).
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Stenzel, A & Wagner, WB 2013 'Asset Opacity and Liquidity' CentER Discussion Paper, vol. 2013-066, Finance, Tilburg.

Asset Opacity and Liquidity. / Stenzel, A.; Wagner, W.B.

Tilburg : Finance, 2013. (CentER Discussion Paper; Vol. 2013-066).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Asset Opacity and Liquidity

AU - Stenzel, A.

AU - Wagner, W.B.

N1 - Pagination: 36

PY - 2013

Y1 - 2013

N2 - Abstract: We consider a model of private information acquisition in which the cost of information depends on an asset's opacity. The model generates a hump-shaped relationship between opacity and the equilibrium amount of private information. In particular, the incentives to acquire information are largest for assets of intermediate opacity; such assets hence display low liquidity in the secondary market due to adverse selection. We also show that costly information acquisition generates incentives to source more correlated assets in the economy, as correlation reduces duplication of information costs. Our ndings have implications for the design of nancial regulation which aim at promoting transparency and reducing correlation in the fi nancial system.

AB - Abstract: We consider a model of private information acquisition in which the cost of information depends on an asset's opacity. The model generates a hump-shaped relationship between opacity and the equilibrium amount of private information. In particular, the incentives to acquire information are largest for assets of intermediate opacity; such assets hence display low liquidity in the secondary market due to adverse selection. We also show that costly information acquisition generates incentives to source more correlated assets in the economy, as correlation reduces duplication of information costs. Our ndings have implications for the design of nancial regulation which aim at promoting transparency and reducing correlation in the fi nancial system.

KW - endogenous information acquisition

KW - opacity

KW - asset liquidity

M3 - Discussion paper

VL - 2013-066

T3 - CentER Discussion Paper

BT - Asset Opacity and Liquidity

PB - Finance

CY - Tilburg

ER -

Stenzel A, Wagner WB. Asset Opacity and Liquidity. Tilburg: Finance. 2013. (CentER Discussion Paper).