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3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
A MODEL OF COST OF CAPITAL
3 CAPM Model
4 Critique of CAPM
4.6 INFORMATION ASYMMETRY
A CLOSER LOOK AT INFORMATION ASYMMETRY
• Adverse selection
• When one type of participant in the market knows
something about the asset being traded that another type
of participant does not know
• The unknown parameter is the honesty of the insider.
• Moral hazard
• Manager effort in running the firm is typically
unobservable, creating the possibility that the manager may
shirk on effort
• The unknown parameter is the extent of manager shirking.
In the face of information asymmetry
A CLOSER LOOK AT INFORMATION ASYMMETRY