We show that this is lead-lag relation is unlikely to be an artifact of differences in liquidity between the spot and futures markets. These results are consistent with the hypothesis that screen trading accelerates the price discovery process. This paper demonstrates how managers with private information about firms' exposure to risk may, in the best interest of shareholders, engage in speculation instead of hedging as the conventional wisdom tells us. The reason is that when profits serve as a signal of firms' values, speculative trades can be used to distort profits and hence manipulate stock prices to the shareholders' advantage. A consequence of such corporate speculation is that stock prices become less informative about firms' true worth.
Equivalence exists whenever the uniformed traders hedge all of their endowments of risky shares.
This occur under two sets of parameter configurations. In both cases, the linear equilibrium in the hedger model always exists. Abstract This paper studies the use of cash and credit for making transactions when there is asymmetric information in credit markets. The greater the degree of adverse selection in credit markets, the wider the range of inflation rates for which a separating equilibrium exists. Credit usage is increasing in the inflation rate, but greater adverse selection may increase or decrease credit usage depending on the parameterization.