Market-based regulation  and the informational content of prices
By: Philip Bond, Itay Goldstein, Edward Simpson Prescott
Contributors: Goldstein, Itay; Prescott, Edward Simpson; Federal Reserve Bank of Richmond
Series: Working paper -- no. 06-12; Working paper (Federal Reserve Bank of Richmond : Online) -- no. 06-12.
Publisher: Federal Reserve Bank of Richmond
Published: 2006
Place of publication: Richmond, Va.]
Language: eng
Format: [electronic resource]  /
Description: "Various laws and policy proposals call for regulators to make use of the information reflected in market prices. We focus on a leading example of such a proposal, namely that bank supervision should make use of the market prices of traded bank securities. We study the theoretical underpinnings of this proposal in light of a key problem: if the regulator uses market prices, prices adjust to reflect this use and potentially become less revealing. We show that the feasibility of this proposal depends critically on the information gap between the market and the regulator. Thus, there is a strong complementarity between market information and the regulator's information, which suggests that regulators should not abandon other sources of information when learning from market prices. We demonstrate that the type of security being traded matters for the observed equilibrium outcome and discuss other policy measures that can increase the ability of regulators to make use of market information."--Federal Reserve Bank of Richmond web site.
Notes: Title from PDF file as viewed on Dec. 18, 2006.

Includes bibliographical references.

Also available in print.

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Mode of access: World Wide Web.