Finance Theory Insights: The Design of Financial Markets

Description

A new issue of Finance Theory Insights, "The Design of Financial Markets," is now available at https://financetheory.org/digest. It is published by the Finance Theory Group, the premier finance theory association. Finance Theory Insights highlights novel insights from a select set of recently published finance theory papers. Each column summarizes key results from a recent research paper, in non-technical terms, highlighting both the novelty of the analysis and its implications to finance and economics questions that regulators and practitioners care about.

OVERVIEW: The current issue covers new perspectives on tradeoffs in the design of financial markets. “Simultaneous Multilateral Search” shows that the move from bilateral bargaining to simultaneous multilateral search in over-the-counter markets might not always be desirable, and even when it is desirable, might face frictions in adoption, which is consistent with what has been observed in practice. “Competition and Information Leakage” analyzes how the concern about information leakage and front running leads investors in over-the-counter markets to limit the number of potential counterparties they contact and the information they disclose. “Secret and Overt Information Acquisition in Financial Markets” discusses the incentives of investors to reveal information about their information-acquisition activities, such as corporate site visits, and shows that sometimes disclosure of such information should be mandatory. “Due Diligence” focuses on the practice of gathering information by the buyer after an offer has been accepted by the seller with the possibility in mind of not moving forward with the transaction.