Boleslavsky, R, Hennessy, C and Kelly, D L (2022) Markets versus Mechanisms. Review of Financial Studies, 35 (7). pp. 3139-3174. ISSN 0893-9454
Abstract
We establish limitations to the usage of direct revelation mechanisms (DRMs) by corporations seeking decision-relevant information in economies with securities markets. In this environment, posting a DRM increases the informed agent’s outside option: if the agent rejects the DRM, he convinces the market he is uninformed, and he can aggressively trade with low price impact, thereby generating large (off-equilibrium) trading gains. This endogenous outside option may make using a DRM to screen uninformed agents impossible. When screening is possible, solely relying on the market for information is optimal if the increase in outside option is sufficiently large.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Additional Information: |
© 2021 Oxford University Press and Society for Financial Studies. This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record Raphael Boleslavsky, Christopher A Hennessy, David L Kelly, Markets versus Mechanisms, The Review of Financial Studies, 2021; hhab131 is available online at: https://doi.org/10.1093/rfs/hhab131 |
Date Deposited: | 11 Jan 2022 15:05 |
Date of first compliant deposit: | 11 Jan 2022 |
Subjects: |
Financial markets Financial risk Disclosure of financial information |
Last Modified: | 04 Dec 2024 02:31 |
URI: | https://lbsresearch.london.edu/id/eprint/2167 |