01834cas a2200241 a 4500 AALejournalIMF006847 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455210732 1018-5941 BD-DhAAL BD-DhAAL Piazza, Roberto. Financial Innovation and Risk, the Role of Information / Roberto Piazza. Washington, D.C. : International Monetary Fund, 2010. 1 online resource (31 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Financial innovation has increased diversification opportunities and lowered investment costs, but has not reduced the relative cost of active (informed) investment strategies relative to passive (less informed) strategies. What are the consequences? I study an economy with linear production technologies, some more risky than others. Investors can use low quality public information or collect high quality, but costly, private information. Information helps avoiding excessively risky investments. Financial innovation lowers the incentives for private information collection and deteriorates public information: the economy invests more often in excessively risky technologies. This changes the business cycle properties and can reduce welfare by increasing the likelihood of "liquidation crises". Mode of access: Internet IMF Working Papers; Working Paper ; No. 2010/266 Full text available on IMF http://elibrary.imf.org/view/journals/001/2010/266/001.2010.issue-266-en.xml IMF e-Library