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Information Asymmetries and Security Market Design: An Empirical Study of the Secondary Market for U.S. Government Securities
Author(s) -
UMLAUF STEVEN R.
Publication year - 1991
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1991.tb03772.x
Subject(s) - information asymmetry , secondary market , primary market , business , government (linguistics) , database transaction , empirical evidence , commerce , empirical research , market microstructure , ask price , monetary economics , finance , economics , order (exchange) , database , computer science , paleontology , linguistics , philosophy , horse , epistemology , stock exchange , stock market , biology
This paper examines the empirical implications of an information asymmetry between primary and secondary dealers in the U.S. Government Securities market. This asymmetry arises because primary dealers are permitted to trade through all brokers operating in the marketplace while secondary dealers are restricted to trade through only a subset of brokers. Brokers distribute valuable information over video screens to their trading clients including dealers' up‐to‐date bid‐ask spreads and recent transaction prices. As such, all brokers' video screen information is available to primary dealers, while only a subset of brokers' information is available to secondary dealers. Empirical analyses detect the resulting information asymmetry.