Events

Prof. Juan Herreño
Assistant Professor
Department of Economics
University of California, San Diego

We study the macroeconomic implications of asymmetric information in capital markets.
We build a quantitative capital-accumulation model in which capital is traded in
illiquid markets, with sellers having more information about capital quality than buyers.
Asymmetric information distorts the terms of trade for sellers of high-quality capital,
who list higher prices and are willing to accept lower trading probabilities to signal
their type. Led by the model’s predictions, we measure the distortions from asymmetric
information by studying the relationship between listed prices and trading probabilities
in a unique dataset of individual capital units listed for trade. By combining the
empirical measurement with the model, we show that information asymmetries can
play a quantitatively large role during economic crises when the degree of asymmetric
information deteriorates.