On Information Creation and Its Effect in Incomplete Financial Markets

Mingren Chen

School of Finance, Shanghai Lixin University of Commerce, Shanghai, China.

DOI: 10.4236/ti.2012.33020                

Abstract

“Thirst for information” existing in financial markets shows that information supply is insufficient and private information is value. Agents will select to acquire economic information under the market incentive mechanism. This is the basis of information creation in incomplete financial markets. Because the information supplies insufficiency in the financial markets is exogenous, information creation is natural exogenous. From this perspective, this paper thinks that information creation has a practical base and a very important significance in financial economic field. The effect of information creation has dual character: the one is positive effect, which should improve market efficiency in long term; the other is negative effects, which should aggravate the market speculation and manipulation, cause financial bubble, and amplify financial risk in short term.

Keywords

Incomplete Financial Markets; Information Creation; Negative Effects; Positive Effects

Conflicts of Interest

The authors declare no conflicts of interest.

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