Why do markets freeze?
AbstractConsider the sale of mortgages by a loan originator to a buyer. As widely noted, such a transaction is subject to a severe adverse selection problem: the originator has a natural information advantage and will attempt to sell only the worst mortgages. However, a second important feature of this transaction has received much less attention: both the seller and the buyer may have existing inventories of mortgages similar to those being sold. The authors analyze how the presence of such inventories affects trade. They use their model to discuss implications for regulatory intervention in illiquid markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 09-24.
Date of creation: 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-31 (All new papers)
- NEP-MIC-2009-10-31 (Microeconomics)
- NEP-RMG-2009-10-31 (Risk Management)
- NEP-URE-2009-10-31 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Adrian, Tobias & Shin, Hyun Song, 2010.
"Liquidity and leverage,"
Journal of Financial Intermediation,
Elsevier, vol. 19(3), pages 418-437, July.
- Allen, Franklin & Carletti, Elena, 2006.
"Mark-to-market accounting and liquidity pricing,"
CFS Working Paper Series
2006/17, Center for Financial Studies (CFS).
- Acharya, Viral V. & Gale, Douglas M & Yorulmazer, Tanju, 2009.
"Rollover Risk and Market Freezes,"
CEPR Discussion Papers
7122, C.E.P.R. Discussion Papers.
- Heaton, John C. & Lucas, Deborah & McDonald, Robert L., 2010. "Is mark-to-market accounting destabilizing? Analysis and implications for policy," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 64-75, January.
- Douglas W Diamond, 2010.
"Fear of fire sales and the credit freeze,"
BIS Working Papers
305, Bank for International Settlements.
- Guillaume Plantin & Haresh Sapra & Hyun Shin, .
"Marking to Market: Panacea or Pandora’s Box ?,"
GSIA Working Papers
2005-E4, Carnegie Mellon University, Tepper School of Business.
- Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July.
- Easley, David & O'Hara, Maureen, 2010. "Liquidity and valuation in an uncertain world," Journal of Financial Economics, Elsevier, vol. 97(1), pages 1-11, July.
- Ashcraft, Adam B. & Schuermann, Til, 2008.
"Understanding the Securitization of Subprime Mortgage Credit,"
Foundations and Trends(R) in Finance,
now publishers, vol. 2(3), pages 191-309, June.
- Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).
If references are entirely missing, you can add them using this form.