Abstract
This paper finds that the information environment at auctions impacts prices, liquidity and participation and has aggregate implications. Using data from real estate auctions, prices and liquidity decline in auctions with more opaque information environments. Increased opacity also induces greater home bias, shrinking the distance between the point of sale and the equilibrium buyer. Assets bought in more opaque information environments also earn lower realized returns, especially for less informed buyers. The effects of information are also felt beyond the auction setting. Increased auction opacity depresses local housing markets, increases the cost of credit and causes smaller firms to fail.
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