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Real assets, financial assets, liquidity and the lemon problem

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  • Gurbachan Singh

Abstract

Return obtained by diversification is based on average quality. Similarly, under asymmetric information, the price at which an asset can be sold reflects the average quality of assets. Therefore, 4under some conditions, sale of an asset under asymmetric information is a useful alternative to diversification. This idea is developed with a model that incorporates a liquidity shock. One key result is that investment in real assets is higher under asymmetric information than under symmetric information. The model can explain why the ratio of real assets to financial assets is higher in emerging economies than in developed countries.

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  • Gurbachan Singh, 2005. "Real assets, financial assets, liquidity and the lemon problem," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 731-757, October.
    • Handle: RePEc:bla:etrans:v:13:y:2005:i:4:p:731-757
    DOI: 10.1111/j.0967-0750.2005.00239.x
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    References listed on IDEAS

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    Cited by:

    1. Gurbachan Singh, "undated". "Financial Repression, Bank Deposits, Real Assets and Black Money," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 09-05, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.

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