THE LIQUIDITY SERVICE OF BENCHMARK SECURITIES
We demonstrate that benchmark securities allow heterogeneously informed investors to create trading strategies that are perfectly aligned with their signals. Investors who are informed about security-specific risks but uninformed about systematic risks can take an offsetting position in benchmark se...
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| Veröffentlicht in: | Journal of the European Economic Association 2005-09, Vol.3 (5), p.1156-1180 |
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| container_end_page | 1180 |
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| container_issue | 5 |
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| container_title | Journal of the European Economic Association |
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| creator | Yuan, Kathy |
| description | We demonstrate that benchmark securities allow heterogeneously informed investors to create trading strategies that are perfectly aligned with their signals. Investors who are informed about security-specific risks but uninformed about systematic risks can take an offsetting position in benchmark securities to eliminate exposure to adverse selection in systematic risks, while investors who are informed about systematic risks but uninformed about security-specific risks can trade systematic risks exclusively using benchmark securities. We further show that introduction of benchmark securities encourages more investors to acquire both security- specific and systematic-factor information, which leads to increased liquidity and price informativeness for all individual securities. |
| doi_str_mv | 10.1162/1542476054729428 |
| format | Article |
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Investors who are informed about security-specific risks but uninformed about systematic risks can take an offsetting position in benchmark securities to eliminate exposure to adverse selection in systematic risks, while investors who are informed about systematic risks but uninformed about security-specific risks can trade systematic risks exclusively using benchmark securities. We further show that introduction of benchmark securities encourages more investors to acquire both security- specific and systematic-factor information, which leads to increased liquidity and price informativeness for all individual securities.</description><subject>Adverse selection</subject><subject>Benchmark securities</subject><subject>Financial securities</subject><subject>Information</subject><subject>Investment risk</subject><subject>Investors</subject><subject>Liquidity</subject><subject>Market prices</subject><subject>Order flow</subject><subject>Prices</subject><subject>Risk</subject><subject>Security prices</subject><subject>Security systems</subject><subject>Stocks</subject><subject>Systematic risk</subject><subject>Trade</subject><issn>1542-4766</issn><issn>1542-4774</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2005</creationdate><recordtype>article</recordtype><recordid>eNqFkM1PwkAQxRujiYjevZj05K26O_sxyxFqgSofEQrE06YtS1IsFrsQ5b-3pIaDF08zee_9JpPnOLeUPFAq4ZEKDhwlERyhxUGdOY2j5HFEfn7apbx0rqxdEwIEWthwvKgfuIPwdRY-hdGbOw0m89AP3HHX7QQjvz9sT14q0Z9NwigMptfOxSrOrbn5nU1n1g0iv-8Nxr3Qbw-8lHNATygBUlBMUpWYFGDJEyXVkgKm3LAWgwSRUCYTuVKpiQHRLI1RwJlJOZOKNZ37-u62LD73xu70JrOpyfP4wxR7q6sMMEBRBUkdTMvC2tKs9LbMNnF50JToYy_6by8VImrkK8vN4d-8fg6CNlVYcXc1t7a7ojxxnBAigB1f8Wo_szvzffLj8l1LZCj0YtTTKsIhzKOF7rAf2b92uA</recordid><startdate>200509</startdate><enddate>200509</enddate><creator>Yuan, Kathy</creator><general>Blackwell Publishing Ltd</general><general>MIT Press</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>200509</creationdate><title>THE LIQUIDITY SERVICE OF BENCHMARK SECURITIES</title><author>Yuan, Kathy</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c4427-58526517bc8bec22d4b868d127c4e3932b770136b6f8cea277edee8243ec43683</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2005</creationdate><topic>Adverse selection</topic><topic>Benchmark securities</topic><topic>Financial securities</topic><topic>Information</topic><topic>Investment risk</topic><topic>Investors</topic><topic>Liquidity</topic><topic>Market prices</topic><topic>Order flow</topic><topic>Prices</topic><topic>Risk</topic><topic>Security prices</topic><topic>Security systems</topic><topic>Stocks</topic><topic>Systematic risk</topic><topic>Trade</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Yuan, Kathy</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of the European Economic Association</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Yuan, Kathy</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>THE LIQUIDITY SERVICE OF BENCHMARK SECURITIES</atitle><jtitle>Journal of the European Economic Association</jtitle><date>2005-09</date><risdate>2005</risdate><volume>3</volume><issue>5</issue><spage>1156</spage><epage>1180</epage><pages>1156-1180</pages><issn>1542-4766</issn><eissn>1542-4774</eissn><abstract>We demonstrate that benchmark securities allow heterogeneously informed investors to create trading strategies that are perfectly aligned with their signals. Investors who are informed about security-specific risks but uninformed about systematic risks can take an offsetting position in benchmark securities to eliminate exposure to adverse selection in systematic risks, while investors who are informed about systematic risks but uninformed about security-specific risks can trade systematic risks exclusively using benchmark securities. We further show that introduction of benchmark securities encourages more investors to acquire both security- specific and systematic-factor information, which leads to increased liquidity and price informativeness for all individual securities.</abstract><cop>Oxford, UK</cop><pub>Blackwell Publishing Ltd</pub><doi>10.1162/1542476054729428</doi><tpages>25</tpages></addata></record> |
| fulltext | fulltext |
| identifier | ISSN: 1542-4766 |
| ispartof | Journal of the European Economic Association, 2005-09, Vol.3 (5), p.1156-1180 |
| issn | 1542-4766 1542-4774 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_36823275 |
| source | EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; Oxford University Press Journals All Titles (1996-Current) |
| subjects | Adverse selection Benchmark securities Financial securities Information Investment risk Investors Liquidity Market prices Order flow Prices Risk Security prices Security systems Stocks Systematic risk Trade |
| title | THE LIQUIDITY SERVICE OF BENCHMARK SECURITIES |
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