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Private Information and the Mortgage Market: Evidence and a Theory of Crises

  • Robert Shimer

A growing body of evidence suggests that private information is important in the mortgage-backed securities market. Recent research reconsiders the theory of how investors trade in the presence of private information. This paper summarizes the evidence and uses the new theoretical approach to explain how trade in mortgage-backed securities can collapse during a crisis.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 716.

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Date of creation: Dec 2013
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Handle: RePEc:chb:bcchwp:716
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  1. Peter DeMarzo & Darrell Duffie, 1999. "A Liquidity-Based Model of Security Design," Econometrica, Econometric Society, vol. 67(1), pages 65-100, January.
  2. Tomasz Piskorski & Amit Seru & James Witkin, 2013. "Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market," NBER Working Papers 18843, National Bureau of Economic Research, Inc.
  3. Robert Shimer & Veronica Guerrieri, 2012. "Markets with Multidimensional Private Information," 2012 Meeting Papers 1192, Society for Economic Dynamics.
  4. Cem Demiroglu & Christopher James, 2012. "How Important is Having Skin in the Game? Originator-Sponsor Affiliation and Losses on Mortgage-backed Securities," Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3217-3258.
  5. Christopher L. Foote & Kristopher S. Gerardi & Paul S. Willen, 2012. "Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis," NBER Working Papers 18082, National Bureau of Economic Research, Inc.
  6. Gorton, Gary & Pennacchi, George, 1990. " Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
  7. Douglas Gale, 1996. "Equilibria and Pareto optima of markets with adverse selection (*)," Economic Theory, Springer, vol. 7(2), pages 207-235.
  8. Chris Downing & Dwight Jaffee, 2009. "Is the Market for Mortgage-Backed Securities a Market for Lemons?," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2257-2294, July.
  9. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  10. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  11. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
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