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Information asymmetry and the speed of adjustment: debasements in the mid‐sixteenth century
Author(s) -
Li LingFan
Publication year - 2015
Publication title -
the economic history review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.014
H-Index - 49
eISSN - 1468-0289
pISSN - 0013-0117
DOI - 10.1111/ehr.12110
Subject(s) - arbitrage , information asymmetry , benchmark (surveying) , economics , financial market , database transaction , sovereignty , asymmetry , financial economics , econometrics , monetary economics , finance , computer science , political science , geography , geodesy , politics , law , programming language , physics , quantum mechanics
This article examines the impact of information asymmetry on the movement of L ondon– A ntwerp exchange rates against the backdrop of the G reat D ebasement of 1544–51. The case of the revaluation of gold coins in the H absburg N etherlands in 1539, about which the sovereign and the public possessed similar information, is used as the benchmark to judge how far the speed of adjustment was affected by information asymmetry. This article is also part of the recent literature that estimates the degree of financial market integration in late medieval and early modern E urope. In the framework of the threshold autoregressive model, the speed of adjustment and the transaction costs associated with arbitrage are estimated, and the results are judged using the speed of communication as a benchmark since the flow of information played a critical role in financial arbitrage. The results reveal that the sixteenth‐century L ondon– A ntwerp exchange markets were already as integrated as that during the late nineteenth century, but information asymmetry severely disturbed the effectiveness of exchange arbitrage.