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Financial Innovation and Risk, the Role of Information, Roberto Piazza

Abstract
Financial innovation has increased diversification opportunities and lowered investment costs, but has not reduced the relative cost of active (informed) investment strategies relative to passive (less informed) strategies. What are the consequences? I study an economy with linear production technologies, some more risky than others. Investors can use low quality public information or collect high quality, but costly, private information. Information helps avoiding excessively risky investments. Financial innovation lowers the incentives for private information collection and deteriorates public information: the economy invests more often in excessively risky technologies. This changes the business cycle properties and can reduce welfare by increasing the likelihood of "liquidation crises"
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Empirical Evidence; III. The Basic Model; A. Technologies and Information Structure; B. Preferences; C. The Problem of the Investor; D. The Microfundation of the Information Structure; E. Equilibrium; IV. Information Cycles and Liquidation Crises; V. Conclusions; Appendices; References; Footnotes
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (57 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9780128355510

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