Real assets, financial assets, liquidity and the lemon problem

Gurbachan Singh
  • Economics of Transition, October 2005, Wiley
  • DOI: 10.1111/j.0967-0750.2005.00239.x

Interesting and unfamiliar effects of asymmetric information

What is it about?

The paper has an interesting counterintuitive result. It is as follows. The return obtained by diversification is based on average quality. Similarly, under asymmetric information, the price at which an individual asset can be sold reflects the average quality of assets. Therefore, under some conditions, sale of an asset under asymmetric information is a useful alternative to diversification.

Why is it important?

The model in the paper can explain why the ratio of real assets to financial assets is higher in emerging economies than in developed countries.


Gurbachan Singh

Based on my PhD thesis, I had submitted a paper on "Real assets, financial assets, liquidity and the lemon problem" to the journal, Economics of Transition. I was asked to revise it. In the process of revision, I arrived at an interesting counterintuitive result. I did not submit a revised version of the original paper. Instead, I submitted the new paper!

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