Essays on the Theory of Financial Markets and on the Theory of Reputation PDF Download
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Author: Wolfgang Pesendorfer
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 236
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Author: Wolfgang Pesendorfer
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 236
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Author: Efthymia-Ioli Argyraki
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Somdutta Basu
Publisher:
ISBN:
Category :
Languages : en
Pages :
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The first chapter of my thesis "Reputation For Two Audiences: Rating Agencies, Auditors, and Issuer-Pays Markets" considers a dynamic model of reputation formation with two audiences. The motivation for studying this model comes from the issuer-pays feature of many certification intermediary markets such as auditors and credit rating agencies. In financial markets, certification intermediaries like auditors and credit rating agencies acquire information about the financial health of a firm. The information these intermediaries provide is used by investors in order to mitigate information risks. This paper investigates whether in a litigation free world reputation concerns can lead to a socially efficient outcome, that is, whether reputation concerns can provide incentives for auditors to expend effort in order to produce high quality auditing. This paper also investigates whether competition among the auditors improves reputational incentives.Reputation of an auditor is modeled as the market belief about his informativeness, which is exogenously given. There are two types of auditors, "informative" and "uninformative". In a monopoly set up, under imperfect monitoring, the informative auditor is diligent only for a low range of reputation. Gains from reputation shrink as the market becomes almost convinced about the auditor's type which leads to a continuum of threshold equilibria. The desired "high effort" equilibrium, which is also socially efficient, occurs only under the restrictive assumption of perfect monitoring. Comparing a duopoly and a monopoly model, I show that the range of reputation for which diligence can be sustained (when cost of diligence is small) is larger under monopoly. Reputation incentives are further weakened in a duopoly set up when firms have private information about the quality of their projects.The second chapter "Competition: Boon or Bane for Reputation Building Behavior" is a joint work with Yu Awaya. This paper investigates whether competition aids or hinders reputation building behavior in experience goods markets. We examine a market where long lived firms face a short term incentive to put low effort. There are two types of firms, "good" firms to whom high effort is costless and "opportunistic" firms who have to pay a small cost for high effort. We characterize the equilibrium strategies of a monopolist and a duopolist for a two period model. Contrary to the prevalent idea that competition improves reputation-building behavior we find that competition may hinder reputation building behavior by shrinking expected future payoffs. Horner (2002) talks about a perfectly competitive market and emphasizes the importance of outside options generated through competition. Our model on the other hand compares a duopoly model with a monopoly model in an environment of price competition. This paper focuses on how competition shrinks expected future payoff and reduces reputation incentives. We also examine the case where a planner can observe the hired firm's type and can dictate the chosen firm's actions. We show under such circumstances the duopolist's choice of effort always coincides with or falls below the effort level the planner prescribes. The third chapter "Informal Insurance and Group Size Under Individual Liability Loans" is a joint work with Souvik Dutta. There has been a recent shift from joint liability to group loans with individual liability by the Grameen Bank and some other prominent micro lending institutions across the world. Under the joint liability lending mechanism a group of individuals were given a loan and individuals in a group were jointly liable for the loan given. Under the new lending regime a group of individuals are given their individual shares of a group loan. Although they have to be in a group in order to have access to the loan, individuals are not liable for the loan of other members in the group. An individual is only liable for her share of the loan. Some recent field experiments observed no change in repayment rates with this regime change. This paper investigates the role of informal insurance among group members to explain the success of group lending with individual liability. We consider a model with finite number of players (villagers) who interact repeatedly. Each villager can invest in a project that can be a success or a failure. Villagers simultaneously obtain a loan from the microcredit organization (bank) at a fixed interest rate. The bank specifies a punishment function which is increasing and convex in the amount of loan not repaid. Individuals have exogenous bilateral arrangements specifying the amount a successful individual transfers to an unsuccessful individual. The realization of output is private information and villagers pay back their loans in a public meeting. An individual's true outcome is revealed with a positive probability in the meeting. We consider a Perfect Bayesian Equilibrium where players repay the entire amount to the bank and keep their promises if successful. We show that with informal insurance individual liability lending can lead to the same repayment rates as joint liability. However individuals' welfare is strictly lower under individual liability lending. In addition, this paper also sheds light on the optimal group size that villagers should maintain under the new lending mechanism.
Author: Francesca Giardini
Publisher: Oxford University Press
ISBN: 0190494093
Category : Social Science
Languages : en
Pages : 656
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Gossip and reputation are core processes in societies and have substantial consequences for individuals, groups, communities, organizations, and markets.. Academic studies have found that gossip and reputation have the power to enforce social norms, facilitate cooperation, and act as a means of social control. The key mechanism for the creation, maintenance, and destruction of reputations in everyday life is gossip - evaluative talk about absent third parties. Reputation and gossip are inseparably intertwined, but up until now have been mostly studied in isolation. The Oxford Handbook of Gossip and Reputation fills this intellectual gap, providing an integrated understanding of the foundations of gossip and reputation, as well as outlining a potential framework for future research. Volume editors Francesca Giardini and Rafael Wittek bring together a diverse group of researchers to analyze gossip and reputation from different disciplines, social domains, and levels of analysis. Being the first integrated and comprehensive collection of studies on both phenomena, each of the 25 chapters explores the current research on the antecedents, processes, and outcomes of the gossip-reputation link in contexts as diverse as online markets, non-industrial societies, organizations, social networks, or schools. International in scope, the volume is organized into seven sections devoted to the exploration of a different facet of gossip and reputation. Contributions from eminent experts on gossip and reputation not only help us better understand the complex interplay between two delicate social mechanisms, but also sketch the contours of a long term research agenda by pointing to new problems and newly emerging cross-disciplinary solutions.
Author: Amer Bisat
Publisher:
ISBN:
Category : Developing countries
Languages : en
Pages : 256
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Author: Ricardo J. Rodriguez
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 260
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Author: Martin Shubik
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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This essay is the second of three. The first is nontechnical and in part autobiographical describing the evolution of my approach to developing a micro economic theory of money and financial institutions. This essay is devoted to a mathematical sketch of a closed economic exchange system with general equilibrium GE and rational expectations RE viewed game theoretically. It squeezes the last drop out of statics and an illusory dynamics in the form of the RE extension of GE with no other externalities beyond money and markets. The third essay builds on process models adding uncertainty, innovation, an active government, nonsymmetric information and other externaties that all lead away from a static equilibrium model to an evolving entity where competition involving finance and innovation is part of a dynamic non-equilibrium process.
Author: Marco Di Maggio
Publisher:
ISBN:
Category :
Languages : en
Pages : 195
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In Chapter 1, I explore how speculators can destabilize financial markets by amplifying negative shocks in periods of market turmoil, and confirm the main predictions of the theoretical analysis using data on money market funds (MMFs). I propose a dynamic trading model with two types of investors - long-term and speculative - who interact in a market with search frictions. During periods of turmoil created by an uncertainty shock, speculators react to declining asset prices by liquidating their holdings in hopes of buying them back later at a gain, despite the asset's cash flows remaining the same throughout. Interestingly, I show that a reduction in trading frictions leads to more severe fluctuations in asset prices. At the root of this result are the strategic complementarities between speculators expected to follow similar strategies in the future. Using a novel dataset on MMFs' portfolio holdings during the European debt crisis, I gauge the strength of funds' strategic interactions as the number of funding relationships each issuer has with MMFs. I show that funds are more likely to liquidate the securities of issuers that have fewer funding relationships with other funds, obliging them to borrow at shorter maturity and higher interest rates. In Chapter 2, co-authored with Marco Pagano, I study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators' trades more visible to hedgers. As a consequence, asset sellers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators and hedgers have low processing costs. But in these circumstances, forbidding hedgers' access to the market may dominate mandatory disclosure. In Chapter 3, I show that reputation concerns are important sources of discipline for institutional investors, but their effectiveness varies along the business cycle. I propose a dynamic model of reputation formation in which investors learn about fund managers' skill upon observing past returns. Managers can generate active returns at a disutility and determine the fund's exposure to tail risk. The model delivers rich dynamics for managers' behavior. Good reputation managers exploit their status by extracting higher rents from investors, while intermediate reputation managers tend to improve their returns to attract more funds. Finally, for bad performers there exists a reputation trap: their perceived low quality prevents them from attracting investors' capital and then also from improving their track record. Furthermore, when the economy is subject to aggregate shocks, fund managers tend to exacerbate fluctuations by exposing the fund to tail risk to increase short-term returns. The model provides a framework to analyze the investment strategies adopted by mutual funds and hedge funds during the recent financial crisis.
Author: Bert Scholtens
Publisher:
ISBN: 9783902109156
Category : Finance
Languages : en
Pages : 59
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Author: Thomas E. Copeland
Publisher:
ISBN: 9781292021584
Category : Corporations
Languages : en
Pages : 924
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This classic textbook in the field, now completely revised and updated, provides a bridge between theory and practice. Appropriate for the second course in Finance for MBA students and the first course in Finance for doctoral students, the text prepares students for the complex world of modern financial scholarship and practice. It presents a unified treatment of finance combining theory, empirical evidence and applications.
