Securitization, Transparency and Liquidity

Marco Pagano () and Paolo Volpin

No 7105, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We present a model in which issuers of structured bonds choose coarse and opaque ratings to enhance the liquidity of their primary market, at the cost of reducing secondary market liquidity or even causing it to freeze. The degree of transparency is inefficiently low if the social value of secondary market liquidity exceeds its private value. We analyze various types of public intervention -- requiring transparency for rating agencies, providing liquidity to distressed banks or supporting secondary market prices -- and find that their welfare implications are quite different. Finally, transparency is greater if issuers restrain the issue size, or tranche it so as to sell the more information-sensitive tranche to sophisticated investors only.

Keywords: default; liquidity; rating; securitization; subprime lending crisis; transparency (search for similar items in EconPapers)
JEL-codes: D82 G18 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2008-12
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP7105.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Securitization, Transparency, and Liquidity (2012)
Working Paper: Securitization, Transparency and Liquidity (2012)
Working Paper: Securitization, Transparency and Liquidity (2010)
Working Paper: Securitization, Transparency and Liquidity (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:7105

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP7105.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Series data maintained by ().