Experimental Evidence on the ‘Insidious’ Illiquidity Risk

Radu Vranceanu and Damien Besancenot

No WP1107, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: This paper brings experimental evidence on investors’ behavior subject to an "illiquidity" constraint, where the success of a risky project depends on the participation of a minimum number of investors. The experiment is set up as a frameless coordination game that replicates the investment context. Results confirm the insidious nature of the illiquidity risk: as long as a first illiquidity default does not occur, investors do not seem able to fully internalize it. After several defaults, agents manage to coordinate on a default probability above which they refuse to participate to the project. This default probability is lower than the default probability of the first illiquidity default.

Keywords: Coordination game; Illiquidity risk; Threshold strategy; Experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C92 D81 G20 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-07-13
New Economics Papers: this item is included in nep-gth
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http://hal-essec.archives-ouvertes.fr/docs/00/60/78/67/PDF/WP1107.pdf (application/pdf)

Related works:
Journal Article: Experimental evidence on the ‘insidious’ illiquidity risk (2014)
Working Paper: Experimental Evidence on the 'Insidious' Illiquidity Risk (2011)
Working Paper: Experimental evidence on the "insidious" illiquidity risk (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:essewp:dr-11007

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