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The course develops tools to study informational frictions in markets and within companies. We cover the key topics in the economics of information (adverse selection, moral hazard, voluntary disclosures, and information design) and introduce their applications in financial economics. Poslední úprava: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)
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Our leading framework is security contracting; the course explains how information frictions generate overinvestment, credit rationing, pecking-order capital structure, adoption of ratings, underpricing of assets in IPOs, and negative market responses to seasoned equity offerings. We also cover the basics of financial market microstructure, disclosures with public news, earnings management, career concerns, monopoly certifications, and strategic communication between corporate boards and top management. Poslední úprava: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)
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Main references Baley, I., Veldkamp, L. (2023). Bayesian Learning. In Handbook of Economic Expectations (pp. 717-748). Elsevier Academic Press. (BV) Foucault, T., Pagano, M., Röell, A. (2013). Market Liquidity: Theory, Evidence, and Policy. Oxford University Press. (FPR) Jehle, G. A., Reny, P. (2011). Advanced Microeconomic Theory. Pearson Education. Especially Chapter 8. (JR) Liang, A. (2024) Information and Learning in Economic Theory. Available at: https://www.anniehliang.com/lecture-notes (AL) Milgrom, P. (2008). What the seller won't tell you: Persuasion and disclosure in markets. Journal of Economic Perspectives, 22(2), 115-131. (PM) Tirole, J. (2010). The Theory of Corporate Finance. Princeton University Press. Chapters 3 and 6. (JT) Tadelis, S. (2013). Game Theory: An Introduction. Princeton University Press, Chapters 12 and 15. (ST)
Readings Acharya, V. V., DeMarzo, P., Kremer, I. (2011). Endogenous information flows and the clustering of announcements. American Economic Review, 101(7), 2955-2979. Birchler, U., Bütler, M. (2007). Information Economics. Routledge. Guttman, I., Kadan, O., Kandel, E. (2006). A rational expectations theory of kinks in financial reporting. The Accounting Review, 81(4), 811-848. Jann, O., Schottmüller, C. (2024). Notes on Information Economics. Mimeo. Kanodia, C., Sapra, H. (2016). A real effects perspective to accounting measurement and disclosure: Implications and insights for future research. Journal of Accounting Research, 54(2), 623-676. Section 3. Kreps, D. M. (2023). Microeconomic Foundations II: Imperfect Competition, Information, and Strategic Interaction. Princeton University Press. Especially Chapter 20. Stiglitz, J. E., Kosenko, A. (2024). The Economics of Information in a World of Disinformation: A Survey Part 1: Indirect Communication (No. w32049). National Bureau of Economic Research. Stiglitz, J. E., Kosenko, A. (2024). The Economics of Information in a World of Disinformation: A Survey Part 2: Direct Communication (No. w32050). National Bureau of Economic Research. Poslední úprava: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)
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Lectures, Tutorials, Assignments, Exams Poslední úprava: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)
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I Foundations of Information Information and Knowledge Application: Disagreement (Aumann, 1976; Geanakoplos and Polemarchakis, 1982) AL 1-3 Bayesian Updating and Signals Bayes Plausibility AL 2, 8 Gaussian Information Positive Dependence Notions AL 1-3 BV 2
II How to Solve Games with Incomplete Information? Complete and Incomplete Information Perfect and Imperfect Information ST 3, 5, 6, 7, 8 Static Games of Incomplete Information Bayesian Nash Equilibrium Dynamic Games of Incomplete Information Perfect Bayesian Equilibrium ST 12, 15 JR 7 Application: Monopolistic Pricing (Property Sale) Application: Career Concerns (Holmstrom, 1999) Application: (Macro) Coordination (Morris and Shin, 2002)
III Adverse Selection Market Breakdown/Unraveling Underinsurance in Simple Insurance Markets JR 8.1.1 Adverse Selection in Corporate Finance Security Design on the Primary Market Investment Efficiency Return Dispersion and Cross-subsidization Seasoned Equity Offerings Pecking-order Hypothesis: The Optimal Mix of Debt and Equity JT 6 Adverse Selection in Financial Markets Market Microstructure Bid-Ask Spread (Glosten and Milgrom, 1985) FPR 3 BB 7
IV Signaling Signaling in Corporate Finance Ratings and Certificates Underpricing in IPOs JT 6
V Disclosures Verifiable Evidence Full Disclosure/Unraveling Uncertainty over Information Endowment Application: Irrelevance of Public News in Financial Markets (Acharya, DeMarzo and Kremer, 2011) PM
VI Moral Hazard Earnings Management Costly Misreporting Application: Bunching in Financial Reporting (Guttman, Kadan and Kandel, 2006) Application: Real Effects of Accounting on Investments (Kanodia and Sapra, 2016) Moral Hazard in Corporate Finance Credit Rationing JT 3 Poslední úprava: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)
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No entry requirements for Master students of Economics and Finance. Poslední úprava: Gregor Martin, doc. PhDr., Ph.D. (03.09.2024)
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