Are Lemons Sold First? Dynamic Signaling in the Mortgage Market
Kristopher Gerardi () and
Barney Hartman-Glaser ()
Additional contact information
Barney Hartman-Glaser: University of California-Los Angeles, Postal: Anderson School of Management, 110 Westwood Plaza, Los Angeles, CA 90095, http://www.anderson.ucla.edu/faculty/finance/faculty/hartman-glaser
No 2016-8, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta
A central result in the theory of adverse selection in asset markets is that informed sellers can signal quality and obtain higher prices by delaying trade. This paper provides some of the first evidence of a signaling mechanism through trade delays using the residential mortgage market as a laboratory. We find a strong relationship between mortgage performance and time to sale for privately securitized mortgages. Additionally, deals made up of more seasoned mortgages are sold at lower yields. These effects are strongest in the "Alt-A" segment of the market, where mortgages are often sold with incomplete hard information, and in cases where the originator and the issuer of mortgage-backed securities are not affiliated.
Keywords: mortgage markets; asymmetric information; signaling (search for similar items in EconPapers)
JEL-codes: G17 G21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2016-07-01, Revised 2018-03-01
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Working Paper: Are Lemons Sold First? Dynamic Signaling in the Mortgage Market (2018)
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