Could Regulation of the ABS Secondary Market Improve Social Welfare?

Abstract

Las opiniones expresadas en este documento reflejan exclusivamente el criterio del autor y no deben ser atribuidas a la Comisión Nacional del Mercado de Valores. La Comisión Nacional del Mercado de Valores, al publicar esta serie, pretende facilitar la difusión de estudios que contribuyen al mejor conocimiento de los mercados de valores y su regulación. La Comisión Nacional del Mercado de Valores difunde la mayoría de sus publicaciones a través de la red Internet en la dirección www.cnmv.es © CNMV. Se autoriza la reproducción de los contenidos de esta publicación siempre que se mencione su procedencia.

On the Role of Transparency in the ABS Secondary Market

“…In Losada (2009), the ABS bond market is analyzed using the same model as in the present paper but assuming that the market is opaque. In this section, a comparison is made between the outcomes from the model of this paper and the ones from the model of Losada (2009). It is assumed that the consumers' search cost and the market makers' fixed costs are equal in both models to make their outcomes comparable.…”

“…In an opaque market, if an investor wants to buy an ABS, he asks the different market makers until he gets in touch with the market maker that owns such a bond. Moreover, in Losada (2009), it is proved that if the market is opaque, an investor who wants to buy an ABS bond has positive probability of asking all market makers. So, the investors' search cost is an increasing and convex function of the number of market makers that operate in the ABS secondary market.…”

“…This model is based on the one presented in Losada (2009), where an opaque market structure for the ABS secondary market is analyzed. The economy that is envisioned consists of two types of securities.…”

“…In the ABS market it is very common that only one market maker sells a bond. This article and the companion paper Losada (2009) can be considered as complementary to Spulber (1993).…”

“…In Losada (2009), a set-up is analyzed that relaxes the assumption that market makers only sells bonds that are not consecutively located. Although the set-up might be more realistic, it is shown that generalizing the model adds more complexity to the model whereas it would not change the qualitative results.…”