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    Institutionalization and prudence attitude in an imperfect competitive market


    Wang, Yanjie, Wang, Yanyi, Zhang, Shunming and Huang, Helen (2024) Institutionalization and prudence attitude in an imperfect competitive market. The European Journal of Finance, 30 (13). pp. 1520-1547. ISSN 1351-847X

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    Abstract

    Previous research has debated about whether institutionalization could improve market efficiency. We develop a theoretical model under anticipated utility combined with probability weighting to study the impacts of institutionalization on market participation and market efficiency. The prudence attitude towards probability uncertainty leads to limited participation by investors. We find that institutionalization influences the market in two different ways. An increase in the total sector size of institutional investors facilitates price discovery but discourages market participation from naïve investors due to information asymmetry. However, when the top institution has high market power, this large institution trades strategically to induce more participation by naïve traders for risk-sharing at the cost of lowering information efficiency.
    Item Type: Article
    Keywords: Institutionalization; market power; anticipated utility; Wang transform; market efficiency; prudence attitude;
    Academic Unit: Faculty of Social Sciences > School of Business
    Item ID: 20655
    Identification Number: 10.1080/1351847X.2024.2308634
    Depositing User: Yanyi Wang
    Date Deposited: 08 Oct 2025 09:16
    Journal or Publication Title: The European Journal of Finance
    Publisher: Taylor & Francis
    Refereed: Yes
    Related URLs:
    URI: https://mural.maynoothuniversity.ie/id/eprint/20655
    Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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