Security Research and Regulation
Peter Spencer · Oxford University Press eBooks · 2000
Previous chapters have assumed that information endowments were fixed exogenously. This chapter, however, shows what happens if we assume that the financial research can deliver useful information about security values. It adjusts the microstructure model to allow for security research and analyses the way which this information is revealed through open-market trades and prices. In the chapter, the model is used to demonstrate the way in which free rider and other endogenous information problems can hinder the functioning of a capital market. It also answers the question of whether security research plays a useful role in the economy. Although financial economists take it as axiomatic that financial research and efficient prices play an important role in resource allocation, only a few developed theoretical models. Comparisons between strategic research and security analysis are also shown in the chapter, as well as secondary market regulation.