Security design in non-exclusive markets with asymmetric information

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• dc.contributor.author Asriyan, Vladimir
• dc.contributor.author Vanasco, Victoria
• dc.date.accessioned 2023-07-11T06:15:03Z
• dc.date.available 2023-07-11T06:15:03Z
• dc.date.issued 2024
• dc.description Includes supplementary materials for the online appendix.
• dc.description.abstract We study the problem of a seller (e.g. a bank) who is privately informed about the quality of her asset and wants to exploit gains from trade with uninformed buyers (e.g. investors) by issuing securities backed by her asset cash flows. In our setting, buyers post menus of contracts to screen the seller, but the seller cannot commit to trade with only one buyer, i.e. markets are non-exclusive. We show that non-exclusive markets behave very differently from exclusive ones: (1) separating contracts are never part of equilibrium; (2) mispricing of claims faced by the seller is always greater than in exclusive markets; (3) there is always a semi-pooling equilibrium where all sellers issue the same debt contract priced at average-valuation, and sellers of low-quality assets issue remaining cash flows at low-valuation; (4) market liquidity can be higher or lower than in exclusive markets, but (5) the average quality of originated assets is always lower. Our model’s predictions are consistent with empirical evidence on the issuance and pricing of mortgage-backed securities, and we use the theory to evaluate recent reforms aimed at enhancing transparency and exclusivity in markets.
• dc.description.sponsorship Asriyan and Vanasco acknowledge financial support from the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S) and from the Generalitat de Catalunya, through CERCA and SGR Programme (2017-SGR-1393). Asriyan acknowledges financial support from the Spanish State Research Agency and the European Social Fund (RYC2019-027607-I/AEI/10.13039/501100011033). Vanasco acknowledges financial support from the European Research Council under the European Union’s Horizon 2020 research and innovation program (INFOMAK - 948432).
• dc.format.mimetype application/pdf
• dc.identifier.citation Asriyan V, Vanasco V. Security design in non-exclusive markets with asymmetric information. Rev Econ Stud. 2024 Mar;91(2):690-719. DOI: 10.1093/restud/rdad038
• dc.identifier.doi http://dx.doi.org/10.1093/restud/rdad038
• dc.identifier.issn 0034-6527
• dc.identifier.uri http://hdl.handle.net/10230/57531
• dc.language.iso eng
• dc.publisher Oxford University Press
• dc.relation.ispartof The review of economic studies. 2024 Mar;91(2):690-719
• dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/948432
• dc.relation.projectID info:eu-repo/grantAgreement/ES/2PE/CEX2019-000915-S
• dc.rights © The Author(s) 2023. Published by Oxford University Press on behalf of the Review of Economic Studies Limited. This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial License (https://creativecommons.org/licenses/by-nc/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact journals.permissions@oup.com
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc/4.0/
• dc.subject.keyword Adverse selection
• dc.subject.keyword Security design
• dc.subject.keyword Non-exclusivity
• dc.subject.keyword Tranching
• dc.subject.keyword Liquidity
• dc.subject.keyword Securitization
• dc.subject.keyword Transparency
• dc.subject.keyword Complexity
• dc.subject.keyword Market design
• dc.subject.keyword Regulation
• dc.title Security design in non-exclusive markets with asymmetric information
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/publishedVersion