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Securitization under asymmetric information over the business cycle

Martin Kuncl

European Economic Review, 2019, vol. 111, issue C, 237-256

Abstract: This paper studies the efficiency of financial intermediation through securitization in a model with heterogeneous lending opportunities and asymmetric information about the quality of securities. Issuers of securities can signal their quality by providing recourse to security buyers. I find that signaling increases the variation in the degree of asymmetric information over the business cycle, which creates the documented growth asymmetry in the cycle. In particular, in the boom stage of the business cycle, security quality remains private information and lower-quality securities accumulate on the balance sheets of lenders. This inefficient allocation of capital implies a deeper drop in output in a subsequent recession proportional to the length of the preceding boom.

Keywords: Asymmetric information; Securitization; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 E44 G01 G20 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Securitization under Asymmetric Information over the Business Cycle (2015) Downloads
Working Paper: Securitization under Asymmetric Information over the Business Cycle (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:111:y:2019:i:c:p:237-256

DOI: 10.1016/j.euroecorev.2018.09.001

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