Experimental Evidence on the ‘Insidious’ Illiquidity Risk
AbstractThis paper brings experimental evidence on investors’ behavior subject to an "illiquidity" constraint, where the success of a risky project depends on the participation of a minimum number of investors. The experiment is set up as a frameless coordination game that replicates the investment context. Results confirm the insidious nature of the illiquidity risk: as long as a first illiquidity default does not occur, investors do not seem able to fully internalize it. After several defaults, agents manage to coordinate on a default probability above which they refuse to participate to the project. This default probability is lower than the default probability of the first illiquidity default.
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Bibliographic InfoPaper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number WP1107.
Length: 27 pages
Date of creation: 13 Jul 2011
Date of revision:
Coordination game; Illiquidity risk; Threshold strategy; Experimental economics;
Other versions of this item:
- Damien Besancenot & Radu Vranceanu, 2011. "Experimental Evidence On The 'Insidious' Illiquidity Risk," CEPN Working Papers halshs-00602107, HAL.
- Damien Besancenot & Radu Vranceanu, 2011. "Experimental Evidence on the 'Insidious' Illiquidity Risk," Post-Print hal-00607867, HAL.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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