Securitization, Transparency and Liquidity

Marco Pagano and Paolo Volpin

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We present a model in which issuers of asset backed securities choose to release coarse information 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 — mandatory transparency standards, provision of liquidity to distressed banks or secondary market price support — and find that they have quite different welfare implications. 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: securitization; transparency; liquidity; rating; subprime; crisis; default (search for similar items in EconPapers)
JEL-codes: D82 G18 G21 (search for similar items in EconPapers)
Date: 2008-12-03, Revised 2010-07-31
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in the Review of Financial Studies, vol. 25, n. 8, 2012

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Related works:
Journal Article: Securitization, Transparency, and Liquidity (2012)
Working Paper: Securitization, Transparency and Liquidity (2012)
Working Paper: Securitization, Transparency and Liquidity (2008)
Working Paper: Securitization, Transparency and Liquidity (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:210

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