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Experimental Evidence on the 'Insidious' Illiquidity Risk

Listed author(s):
  • Damien Besancenot

    ()

    (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

  • Radu Vranceanu

    ()

    (Economics Department - Essec Business School)

This 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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File URL: https://hal-essec.archives-ouvertes.fr/hal-00607867v2/document
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Paper provided by HAL in its series Post-Print with number hal-00607867.

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Date of creation: 01 Jun 2011
Publication status: Published in ESSEC Working paper. Document de recherche ESSEC / Centre de recherche de l'ESSEC ISSN : 1291-961.. 2011, pp.27
Handle: RePEc:hal:journl:hal-00607867
Note: View the original document on HAL open archive server: https://hal-essec.archives-ouvertes.fr/hal-00607867v2
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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