Pricing,issuance volume,and design of innovative securities: The role of investor information |
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| Affiliation: | 1. Center for Economics, Politics and History, University of Austin, 912 S. Capital of Texas Highway, Austin, TX 78746, USA;2. Department of Economics and Finance, Utah State University, 3565 Old Main Hill, Logan, UT 84322, USA;1. Asset Management Service, Bureau of the Treasury, Republic of The Philippines, Ayuntamiento Building, Cabildo Street Corner A. Soriano Avenue Intramuros, Manila 1002, Philippines;2. College of Liberal Arts, Department of Economics and Business, International Christian University, 3-10-2 Osawa, Mitaka-shi, Tokyo 181-8585, Japan;1. Lally School of Management at Rensselaer Polytechnic Institute, 110 8th Street, Troy, NY 12180, United States;2. University of Wisconsin–River Falls, 212C South Hall, 410 S. Third Street, River Falls, WI 54022, United States;1. Finance Department, Goethe University, Theodor-W.-Adorno-Platz 3, Frankfurt am Main, Germany;2. Wharton School, University of Pennsylvania, 3620 Locust Walk, 3000 SH-DH, Philadelphia, PA 19104, USA |
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| Abstract: | This study investigates the role of asymmetric information for the pricing, issuance volume, and design of innovative securities. By analyzing the information that structured product issuers provide to the investors of those products, we can identify specific sources of asymmetric information between the issuers and investors in this market. We show that issuers exploit this information friction to offer products to investors that appear more profitable for the issuer. In addition, we find that the friction induces issuers to design products with higher information asymmetry. Our results suggest that product issuers’ behavior increases information frictions in the financial system. |
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| Keywords: | Structured products Investor information Financial innovation |
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