TITLE

Government insurance, information, and asset prices

AUTHOR(S)
Lopomo Beteto Wegner, Danilo
PUB. DATE
May 2015
SOURCE
International Review of Economics & Finance;May2015, Vol. 37, p165
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
An investment decision problem is studied, in a framework where the government offers insurance against the possibility of the price of a risky asset falling drastically. The problem is considered under different informational scenarios, i.e., information quality, under which agents have to infer the state of fundamentals of the economy. Changes in information quality is shown to affect equilibrium prices despite no concomitant changes in the fundamentals, creating excess volatility. The possibility of government intervention is shown to increase equilibrium prices, which can be ordered as a function of information quality. Empirical evidence supporting the model is presented.
ACCESSION #
102316320

 

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