Adverse Selection and Information Chasing in OTC Markets: Whose Information Matters and Why?

Key Points

• Adverse selection significantly affects trading outcomes in OTC markets, leading to inefficient trades.
• A critical finding is that 70% of trades are influenced by asymmetric information among traders.
• Analysis uses real-world trading data from OTC markets to explore behavior regarding information chasing.
• Implications underscore the need for improved transparency to mitigate adverse selection in trading.