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The Sale of Multiple Assets with Private Information

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  • Zhiguo He

Abstract

By generalizing the Leland and Pyle (1977) model to the case of multiple correlated assets, this paper studies the signaling and hedging behavior of an intermediary who sells multiple assets in financial markets. Based on information asymmetry, this paper demonstrates the intrinsic interdependence of risk management and asset selling for intermediaries, and obtains several testable empirical implications. For instance, an intermediary with a more diversified underlying portfolio will face greater liquidity (a smaller price impact) when selling assets to the market. Several applications are discussed, including bank loan sales and selling mechanisms. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Zhiguo He, 2009. "The Sale of Multiple Assets with Private Information," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4787-4820, November.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:11:p:4787-4820
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    File URL: http://hdl.handle.net/10.1093/rfs/hhn119
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    Citations

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    Cited by:

    1. Maryam Farboodi & Laura Veldkamp, 2017. "Long Run Growth of Financial Technology," NBER Working Papers 23457, National Bureau of Economic Research, Inc.
    2. Alex Edmans & William Mann, 2019. "Financing Through Asset Sales," Management Science, INFORMS, vol. 65(7), pages 3043-3060, July.
    3. Veldkamp, Laura & Farboodi, Maryam, 2018. "Long Run Growth of Financial Data Technology," CEPR Discussion Papers 13278, C.E.P.R. Discussion Papers.
    4. Maryam Farboodi & Laura Veldkamp, 2018. "Long Run Growth of Financial Data Technology," Working Papers 18-09, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Araujo, Aloisio & Moreira, Humberto & Tsuchida, Marcos, 2011. "Do dividend changes signal future earnings?," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 117-134, January.
    6. García, Diego, 2014. "Optimal contracts with privately informed agents and active principals," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 695-709.
    7. Stergios Leventis & Panagiotis E. Dimitropoulos & Asokan Anandarajan, 2012. "Signalling by banks using loan loss provisions: the case of the European Union," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(5), pages 604-618, September.

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