Self-fulfilling liquidity dry-ups

Arbeitspapier

Secondary markets for long-term assets might be illiquid due to adverse selection. In a model in which moral hazard is confined to project initiation, I find that: (1) when agents expect a liquidity dry-up on such markets, they optimally choose to self-insure through the hoarding of non-productive but liquid assets; (2) such a response has negative externalities as it reduces ex-post market participation, which worsens adverse selection and dries up market liquidity; (3) liquidity dry-ups are Pareto inefficient equilibria; (4) the Government can rule them out. Additionally, when agents face idiosyncratic, privately known, illiquidity shocks, I show that: (5) it increases market liquidity; (6) illiquid agents are better-off when they can credibly disclose their liquidity position, but transparency has an ambiguous effect on risk-sharing possibilities.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: NBB Working Paper ; No. 185

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Markets and the Macroeconomy ; Financial Crises ; Portfolio Choice; Investment Decisions
• Thema: Liquidity ; Liquidity Dry-ups ; Financial Crises ; Hoarding ; Adverse Selection ; Self-insurance ; Portfolio-Management ; Marktliquidität ; Schock ; Adverse Selektion ; Finanzkrise ; Anlegerschutz ; Second Best ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Malherbe, Frédéric
• Ereignis: Veröffentlichung
• (wer): National Bank of Belgium
• (wo): Brussels
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/144397
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ