Institutional markets, financial marketing, and financial innovation
Article Abstract:
Firms and institutions are monitored and controlled through a complex set of implicit and explicit contracted relations. Because of these agency theoretic relations, institutional behavior in financial markets is not a simple reflection of the preference structures of individuals. Institutional preferences give rise to a demand for new financial instruments and innovations, even when the returns on these instruments are "spanned" in the sense of complete pricing. The innovations can be thought of as solving moral hazard problems. An agency theoretic example serves to illustrate the demand, supply, and financial marketing of stripped securities. In short, institutions matter. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1989
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Quotes, prices, and estimates in a laboratory market
Article Abstract:
This study examines the behavior of laboratory market in which two uninformed market makers compete to trade with heterogeneity informed investors. The data provide three main results. First, market makers set quotes to protect against adverse selection and to control inventory. Second, when investors are less well-informed, their trades are less reliable measures of their information, and market makers respond to those trades with greater skepticism. Third, errors in market makers' reactions to trades cause the time-series behavior of quotes and prices to depend on the information environment in ways beyond those captured in extant theory. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1996
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