TitleTwo theories on information asymmetry in finance
NameLo, Te-Chien (author), Chen, Ren-Raw (chair), Lee, Cheng-Few (internal member), Sopranzetti, Ben (internal member), XU, YUEWU (outside member), Rutgers University, Graduate School - Newark,
Financial risk management,
DescriptionThis dissertation includes two essays which investigate the effects of information asymmetry in liquidity risk pricing and in agency problems. The brief abstracts of these two essays are presented as follows. The first essay investigates how a risk averse liquidity provider sets optimal limit order book under information asymmetry. I extend the model proposed by Copeland and Galai (1983). First, in response to increasing trade size, a severe risk averse liquidity provider offers convex negatively-sloped bid curves and concave positively-sloped ask curves under information asymmetry. In addition, the simultaneous existence of the risk averse liquidity provider and market information asymmetry is the necessary condition that the liquidity provider offers negatively-sloped bid curves and positively-sloped ask curves. Both numerical analysis and empirical evidence on the limit order book of Taiwan Index Futures support the findings in this essay. In the second essay, I investigate the effects of information asymmetry under the two-tiered agency problem which is commonly observed in a typical organizational structure. I propose the two-tiered agency model and shows that imposing Joint Responsibility policy between Agent_1 (Chief Executive Officer) and Agent_2 (Chief Financial Officer) is NOT a good policy for Principal (Shareholders). Joint Responsibility is that Agent_1 is accused of not identifying in advance Agent_2 who takes on destructive risky projects. I design two cases (Case_1 excludes Joint Responsibility and Case_2 includes it) and prove that Principal’s payoffs in Case_1 weakly dominate that in Case_2. In addition, static comparative analysis shows that how the change of the losses from the bad state of the high risky project, or the parameter of Agent_1’s monitoring costs, alters Agent_1’s monitoring and Principal’s payoffs in equilibrium.
NoteIncludes bibliographical references
Noteby Te-Chien Lo
CollectionGraduate School - Newark Electronic Theses and Dissertations
Organization NameRutgers, The State University of New Jersey
RightsThe author owns the copyright to this work.