Alonso, Ricardo 
ORCID: 0000-0001-9559-0864 and Zachariadis, Konstantinos E.
(2024)
Persuading large investors.
Journal of Economic Theory.
p. 105933.
ISSN 0022-0531
(In Press)
Abstract
A regulator who designs a public stress test to avert default of a distressed bank via private investment must account for large investors’ private information on the bank’s state. We provide conditions for crowding-in (crowding-out) so that the regulator offers an endogenous more (less) informative signal to better-informed investors. We show that crowding-in occurs as long as investors remain responsive to public news and they are sufficiently well informed: the regulator’s test perfectly reveals the state as investors’ become privately perfectly informed. Investors’ value from more precise private signals may come from their effect on the public test’s precision.
| Item Type: | Article |
|---|---|
| Additional Information: | © 2024 The Author(s) |
| Divisions: | Management Finance |
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation |
| Date Deposited: | 12 Nov 2024 17:33 |
| Last Modified: | 12 Nov 2024 17:33 |
| URI: | http://eprints.lse.ac.uk/id/eprint/126040 |
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