Secondary Market Liquidity and Security Design: Theory and Evidence from ABS Markets

• 成果类型: Article
• 署名作者: Friewald, Nils; Hennessy, Christopher A.; Jankowitsch, Rainer
• 署名单位: Norwegian School of Economics (NHH); University of London; London Business School; Centre for Economic Policy Research - UK; Vienna University of Economics & Business
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhv128
• 发表日期: 2016
• 页码: 1254
• 关键词: information; MODEL

摘要

We develop and empirically test a theory of optimal security design under adverse selection accounting for strategic trading by uninformed investors who will liquidate a security in secondary markets only if their idiosyncratic carrying costs exceed the security's expected trading loss. Such investors demand primary market discounts equaling expected carrying costs borne plus trading losses incurred. Issuers minimize the total illiquidity discount by splitting cash-flow into tranched debt claims with liquidity predicted to increase with seniority, while the optimal number of tranches increases with underlying cash-flow risk. Empirical tests confirm our model predictions.