The Downside of Asset Screening for Market Liquidity

• 成果类型: Article
• 署名作者: Vanasco, Victoria
• 署名单位: Stanford University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12519
• 发表日期: 2017
• 页码: 1937-1982
• 关键词: Adverse selection; security design; signaling games; moral hazard; loan sales; securitization; INFORMATION; CRISIS; intermediation; banks

摘要

This paper explores the tension between asset quality and market liquidity. I model an originator who screens assets whose cash flows are later sold in secondary markets. Screening improves asset quality but gives rise to asymmetric information, hindering trade of the asset cash flows. In the optimal mechanism (second-best), costly retention of cash flows is essential to implement asset screening. Market allocations can feature too much or too little screening relative to second-best, where too much screening generates inefficiently illiquid markets. Furthermore, the economy is prone to multiple equilibria. The optimal mechanism is decentralized with two tools: retention rules and transfers.