IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03415735.html
   My bibliography  Save this paper

Learning by Holding and Liquidity

Author

Listed:
  • Guillaume Plantin

    (London Business School, Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh])

Abstract

A number of assets do not trade publicly but are sold to a restricted group of investors who subsequently receive private information from the issuers. Thus, the holders of such privately placed assets learn more quickly about their assets than other agents. This paper studies the pricing implications of this "learning by holding". In an economy in which investors are price takers and risk-neutral, and absent any insider trading or other transaction costs, we show that risky assets command an excess expected return over safe assets in the presence of learning by holding. This is reminiscent of the "credit spread puzzle"—the large spread between BBB-rated and AAA-rated corporate bonds that is not explained by historical defaults, risk aversion, or trading frictions. The intuition is that the seller of a risky bond needs to offer a "coordination premium" that helps potential buyers overcome their fear of future illiquidity. Absent this premium, this fear could become self-justified in the presence of learning by holding because a future lemons problem deters current market participation, and this in turn vindicates the fear of a future lemons problem.

Suggested Citation

  • Guillaume Plantin, 2009. "Learning by Holding and Liquidity," Post-Print hal-03415735, HAL.
  • Handle: RePEc:hal:journl:hal-03415735
    DOI: 10.1111/j.1467-937X.2008.00526.x
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-03415735. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.