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Optimal Opacity on Financial Markets

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  • Siegert, Caspar

Abstract

We analyze the incentives for information disclosure in financial markets. We show that borrowers may have incentives to voluntarily withhold information and that doing so is most attractive for claims that are inherently hard to value, such as portfolios of subprime mortgages. Interestingly, opacity may be optimal even though it increases informational asymmetries between contracting parties. Finally, in our setting a government can intervene in ways that ensure the liquidity of financial markets and that resemble the initial plans for TARP. Even if such interventions are ex-post optimal, they affect incentives for information disclosure and have ambiguous ex-ante effects.

Suggested Citation

  • Siegert, Caspar, 2014. "Optimal Opacity on Financial Markets," Discussion Papers in Economics 20937, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:20937
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    File URL: https://epub.ub.uni-muenchen.de/20937/1/Caspar.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Information Acquisition; Adverse Selection; Allocative Efficiency; Opacity;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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