Asymmetry happens when two sides of something aren't equal. Think: fiddler crabs. In the financial world, asymmetrical information exists when one side of a transaction has more information about stocks, bonds or securities than another.
Example: Insiders may get some information about their company and then sell or trade stocks before other shareholders get wind of the same info. It's illegal. Do not do it. We love Orange is the New Black, too, but no one looks good in prison colors.
Related or Semi-related Video
Finance: What are Bonds?393 Views
Finance a la shmoop what is a bond? well a bond is your word your promise your [Women shake hands]
handshake your John Hancock on a contracted piece of paper your mortgage
your credit card debt yeah their bonds to your "I swear I'm not a deadbeat"
declaration... that's your bond right well bonds come [Man lying on a sofa]
in many complex flavors and compositions simply put bonds are loans aka debt you
borrow money or you promise or you you bond that
you'll pay it back when you borrow money the amount you borrow is called the
principal you pay rent on that amount borrowed and that rent is called [rent appears at bank]
interest to the entity loaning you the money that interest is called yield
thank you very much for the yield like if the lender rents you a grand for a
year and you pay them a thousand 80 bucks at year-end paying back the
principal and then the rent on the money while the lender will have had a yield [Yield of lender appears]
of 8% on the grand that they loaned you so that's a bond you borrow money you
pay it back and if you don't the person who loaned you the dough well they [Person stamped with property of shmoop bank]
generally own your tuchus and yeah you know what Shakespeare said about bonds
yeah that's what he said so if you don't really know what you're doing don't do
it...
Up Next
What is Asymmetric Information? The idea of asymmetric information applies to basically all transactions. It exists in the financial world because...
What is probability distribution? Statistical analysis is a study that compiles and breaks down data gathered from a wide range of categories and c...
Who invests in stocks? 401k plans, pension funds, institutional investors, banks, traders, clients of Schwab, Fidelity, and Franklin. Joe Blow buys...
What are shares outstanding? The total size of the pie. All of the shares outstanding comprise the total votes and value of a given company. If XYZ...