Interbank Market Integration Under Asymmetric Information

This study aims at examining the integration impact of the five ASEAN Islamic capital markets on asymmetric information for ASEAN Economic Community (AEC) development. Utilizing samples of market and financial panel data from 2009 to 2015 among the five ASEAN Islamic capital markets, and applying two-country portfolios of the Islamic capital markets among the five ASEAN countries to measure the different levels of Islamic capital market integration, this study suggests that the different levels of the Islamic capital market integration between Indonesia and Malaysia are found to result in asymmetric information negatively. The strongest Islamic capital market integration between Indonesia and Malaysia affect reduced asymmetric information more consistently than the other two-country portfolios, while the weakest level of integration between the Philippines and any other four Islamic capital markets that affects asymmetric information inconsistently is also supported. These results confirm an interplay between a modern portfolio theory, Efficient Market Hypothesis (EMH), contract theory, and general economic theory, and also provide new insights for stakeholders in investment decisions and strategies, cross-border regulation of economic resources, and other plentiful benefits.

Download Full-text

Book Reviews

Journal of Economic Literature ◽

10.1257/jel.50.4.1106.r2 ◽

2012 ◽

Vol 50 (4) ◽

pp. 1109-1113

Keyword(s):

Financial Crises ◽

Market Integration ◽

Asset Prices ◽

Exchange Rate Volatility ◽

Asset Markets ◽

Financial Contagion ◽

Bank Failures ◽

Interbank Market ◽

Lender Of Last Resort ◽

Private And Public

Goetz von Peter of Bank for International Settlements reviews, “Liquidity and Crises” by Franklin Allen, Elena Carletti, Jan Pieter Krahnen and Marcel Tyrell. The EconLit Abstract of this book begins: “Twenty-five previously published papers examine liquidity and its role in financial crises. Papers discuss preference shocks, liquidity, and central bank policy; endogenous liquidity in asset markets; financial intermediaries and markets; financial fragility, liquidity, and asset prices; interbank market integration under asymmetric information; banks as monitors of other banks-evidence from the overnight federal funds market; private and public supply of liquidity; liquidity, efficiency, and bank bailouts; financial crises, payment system problems, and discount window lending; liquidity, risk taking, and the lender of last resort; coordination failures and the lender of last resort-whether Walter Bagehot was right after all; competition among regulators and credit market integration; money in a theory of banking; liquidity and asset prices; collateral constraints in a monetary economy; inefficient credit booms; financial contagion through capital connections-a model of the origin and spread of bank panics; information contagion and bank herding; cash in-the-market pricing and optimal resolution of bank failures; credit risk transfer and contagion; estimating bilateral exposures in the German interbank market-whether there is a danger of contagion; asset market linkages in crisis periods; strategic complementarities and the twin crises; inefficient foreign borrowing-a dual- and common-agency perspective; and exchange rate volatility and the credit channel in emerging markets-a vertical perspective. Allen is Nippon Life Professor of Finance, Professor of Economics, and the codirector of the Wharton Financial Institutions Center in the Wharton School at the University of Pennsylvania. Carletti is Professor of Economics and Joint Chair of the Economics Department and the Robert Schuman Center for Advanced Studies at the European University Institute. Krahnen is Chair of Corporate Finance at Johann Wolfgang Goethe-University Frankfurt. Tyrell is Professor of Entrepreneurship and Finance at Zeppelin University. Index.”

Download Full-text

The Influence of Information Diffusion on Interbank Risk Contagion

Complexity ◽

10.1155/2021/8887518 ◽

2021 ◽

Vol 2021 ◽

pp. 1-21

Author(s):

Zhinan Li ◽

Peilong Shen ◽

Xiaoyuan Liu

Keyword(s):

Asymmetric Information ◽

Information Diffusion ◽

Interbank Market ◽

Computational Simulations ◽

Liquidity Trap ◽

Rollover Risk ◽

Influencing Mechanism ◽

Behavioral Rules

In this paper, the stylized features of incomplete and asymmetric information in the interbank market leading to banks’ precautionary behaviors are introduced. Based on banks’ stylized behavioral rules, the influencing mechanism of information diffusion on interbank risk contagion is analyzed, and how the existence of information diffusion and banks’ information-obtaining ability influence the interbank risk contagion is verified through computational simulations. The results show that information diffusion can significantly accelerate the process of and magnify the extent and probability of interbank risk contagion, and improving banks’ information-obtaining ability could lower the speed and extent of the interbank risk contagion. This paper also finds and explains some special phenomena of rollover risk contagion when information diffusion exists: the saltatory risk contagion, the circular liquidity trap, and the risk discovery of information diffusion.

Download Full-text