Dynamic Adverse Selection and Debt PDF Download

Author: Gilles Chemla
Publisher:
ISBN:
Category : Business networks
Languages : en
Pages : 34

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Author:
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ISBN:
Category :
Languages : en
Pages :

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The Finance Division of the Faculty of Commerce and Business Administration at the University of British Columbia in Vancouver, British Columbia, Canada, presents the full text of a working paper entitled "Dynamic Adverse Selection and Debt," by Gilles Chemla and Antoine Faure-Grimand. The paper discusses how the strategic use of debt by an uninformed party induces another party to reveal private information.

Author: Nathan Foley-Fisher
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Nathan Foley-Fisher
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt's backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes profitable for some agents to produce private information, and then the debt faces adverse selection when traded (i.e., it becomes information-sensitive). We empirically study these adverse selection dynamics in a very important asset class, collateralized loan obligations, a large symbiotic appendage of the regulated banking system, which finances loans to below investment-grade firms.

Author: Charl Kengchon
Publisher:
ISBN:
Category :
Languages : en
Pages : 334

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Author: Laura Alfaro
Publisher:
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Category :
Languages : en
Pages : 21

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We construct a dynamic equilibrium model to quantitatively study sovereign debt contingent services and country risk spreads. The sovereign's present benefits of defaulting are tempered by higher borrowing interest rates in the future. Our results suggest that the (additional) output drop due to default is an important factor in determining the qualitative nature of equilibria. The autoaggressive specification of technology shocks in conjunction with the adverse selection problem give rise to the phenomenon of "muddling through," the delay of some countries to default as way to reduce loss of reputation.

Author: Christopher L. House
Publisher:
ISBN:
Category :
Languages : en
Pages : 38

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This paper reexamines the relationship between financial market imperfections and economic instability. I present a model in which financial accelerator effects come from adverse selection in credit markets. Unlike other models of the financial accelerator, this model has the potential to stabilize the economy rather than destabilize it. The stabilizing forces in the dynamic model are closely related to forces that cause overinvestment in static models. Consequently, the stabilizing outcomes are not specific to adverse selection but rather are present in any environment in which credit market distortions cause overinvestment. When investment projects are equity financed, or when contracts are written optimally, the only equilibria that emerge are stabilizer equilibria. Thus, stabilizing equilibria are more robust than destabilizing equilibria. Finally, the empirical distinction between accelerator equilibria and stabilizer equilibria is subtle. Many statistics that test for financial accelerators are observationally equivalent in stabilizer equilibria.

Author: Bengt Holmstrom
Publisher: MIT Press
ISBN: 0262518538
Category : Business & Economics
Languages : en
Pages : 263

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Two leading economists develop a theory explaining the demand for and supply of liquid assets. Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets? When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively? These questions are at the center of all financial crises, including the current global one. In Inside and Outside Liquidity, leading economists Bengt Holmström and Jean Tirole offer an original, unified perspective on these questions. In a slight, but important, departure from the standard theory of finance, they show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management. The government has an active role to play in improving risk-sharing between consumers with limited commitment power and firms dealing with the high costs of potential liquidity shortages. In this perspective, private risk-sharing is always imperfect and may lead to financial crises that can be alleviated through government interventions.

Author: Gene Amromin
Publisher: DIANE Publishing
ISBN: 1437987850
Category : Business & Economics
Languages : en
Pages : 57

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CM became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans (interest only, negative amortization, and teaser mortgages) enable households to postpone loan repayment compared to traditional mortgages and hence relax borrowing constraints. But, they increase household leverage and heighten dependence on mortgage refinancing. CM were chosen by prime borrowers with high income levels seeking to purchase expensive houses relative to their incomes. Borrowers with CM experience substantially higher ex post default rates than borrowers with traditional mortgages with similar characteristics. Illus. This is a print on demand report.

Author: Bruce C. Greenwald
Publisher: Dissertations-G
ISBN:
Category : Business & Economics
Languages : en
Pages : 330

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