Adverse Selection Dynamics in Privately-Produced Safe Debt Markets / Nathan Foley-Fisher, Gary B. Gorton, Stéphane Verani.

Format:

Book

Author/Creator:

Foley-Fisher, Nathan.

Contributor:

National Bureau of Economic Research.

Gorton, Gary B.

Verani, Stéphane.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28016.

NBER working paper series no. w28016

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt's backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes profitable for some agents to produce private information, and then the debt faces adverse selection when traded (i.e., it becomes information-sensitive). We empirically study these adverse selection dynamics in a very important asset class, collateralized loan obligations, a large symbiotic appendage of the regulated banking system, which finances loans to below investment-grade firms.

Notes:

Print version record

October 2020.