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Author: | Franke, G. |
Title: | Costless signalling in financial markets. |
Journal: | Journal of Finance
1987 : SEP, VOL. 42:4, p. 809-822 |
Index terms: | MONEY MARKETS BONDS INVESTMENT |
Language: | eng |
Abstract: | A costless, fully revealing signalling equilibrium is derived from two easily understandable conditions. The outsider- rationality condition states that the outsiders relate the price that they offer to pay a security inversely to the supply of this security, which they interpret as a quality signal. The no-arbitrage condition requires that the marginal exchange rate for two securities be the same and have strong implications for the valuation of securities and of the total firm. A costless signalling equilibrium is obtained. |
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