Asymmetric information influence on efficiency of capital market

Minović, Jelena (2016) Asymmetric information influence on efficiency of capital market. In: Serbian road to the EU : finance, insurance and monetary policy. Bar Code Graphics, Inc. ; Faculty of Business Economics and Entrepreneurship, Chicago ; Belgrade, pp. 164-179. ISBN 978-1-5323-2196-2

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Abstract

The paper research issues related to asymmetric information on capital markets. It is realistic to assume that all market participants do not have available all the information. The Serbian capital market is characterized by high informational asymmetry between investors. Therefore, it is necessary to consider asymmetric information on the capital market, and estimate its impact on the expected asset returns. Thus, in this paper we described issues related to asymmetric information on the Serbian capital market. Public reporting in Serbia doesn’t have any serious rules, and insider information is widely used. It was happened that people respond on rumours with large investments. The paper presents the probability of informed trading (PIT measure), which would be a useful indicator of liquidity for emerging and frontier markets. Therefore, the main goal of this paper is to examine impact of asymmetric information on efficiency of capital markets. More precisely, it considers market equilibrium with investors who have asymmetrical information. For this reason, the paper presents empirical model in order to examine the impact of asymmetric information on the assets pricing. Generally, capital markets are not perfect. In particular, emerging and frontier markets are not perfect, specifically (for example, the Serbian capital market). However, there is information asymmetry through which borrowers (securities issuers) know more about the risks than the lenders to (securities purchasers). Thus, market participants may be reluctant to trade with these assets, whose characteristics and behaviour under varying economic conditions are not well known. The paper presents all advantages and disadvantages of studied models.

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