Reputation and Persistence of Adverse Selection in Secondary Loan Markets

Chari, V. V.; Shourideh, Ali; Zetlin‐Jones, Ariel

doi:10.1257/aer.104.12.4027

Cited by 59 publications

(23 citation statements)

References 48 publications

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“…Gorton and Ordoñez (2014) show that the incentive to produce information about previously information-insensitive debt claims can generate financial crises Chari, Shourideh, and Zetlin- Jones (2014). andGuerrieri and Shimer (2014) also show that asymmetric information matters to understand the recent financial crisis.…”

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confidence: 99%

Wholesale Funding Dry‐Ups

Pérignon¹,

Thesmar²,

Vuillemey

2018

The Journal of Finance

110

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We empirically explore the fragility of wholesale funding of banks, using transaction‐level data on short‐term, unsecured certificates of deposit in the European market. We do not observe a market‐wide freeze during the 2008 to 2014 period. Yet, many banks suddenly experience funding dry‐ups. Dry‐ups predict, but do not cause, future deterioration in bank performance. Furthermore, during periods of market stress, banks with high future performance tend to increase reliance on wholesale funding. We therefore fail to find evidence consistent with adverse selection models of funding market freezes. Our evidence is in line with theories highlighting heterogeneity between informed and uninformed lenders.

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confidence: 99%

Wholesale Funding Dry‐Ups

Pérignon¹,

Thesmar²,

Vuillemey

2018

The Journal of Finance

110

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“…As discussed in the section of generalizability, we expect our conclusions to hold for multiple group insurance products in various markets of a similar nature, for example, U.S. small-group health insurance. Our results may also shed light on markets other than insurance characterized by information asymmetry, where the existence and persistence of adverse selection are also relevant (see, e.g., Chari, Shourideh, and Zetlin-Jones, 2014).…”

Section: Concluding Remarks and Future Researchmentioning

confidence: 74%

BETWEEN‐GROUP ADVERSE SELECTION: EVIDENCE FROM GROUP CRITICAL ILLNESS INSURANCE

Eling

Jia

Yao

2015

J of Risk & Insurance

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This article demonstrates the presence of adverse selection in the group insurance market. Conventional wisdom suggests that group insurance mitigates adverse selection because it minimizes individual choice. We complement this conventional wisdom by analyzing a group insurance scenario in which individual choice is excluded, and we find that group insurance alone is not effective enough to eliminate adverse selection; that is, between‐group adverse selection exists. Between‐group adverse selection, however, disappears over time if the group renews with the same insurer for a certain period. Our results thus indicate that experience rating and underwriting based on information that insurers learn over time are important in addressing adverse selection.

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“…I differ in that I study the macroeconomic dynamics of secondary markets and emphasize the endogenous evolution of intermediary wealth. Chari, Shourideh, and Zetlin-Jones (2014) show how secondary markets may collapse suddenly in the presence of adverse selection. I study how growing secondary markets can lead to falling asset quality.…”

Section: Ecb Working Paper 2039 March 2017mentioning

confidence: 98%

Macroeconomic Effects of Secondary Market Trading

Neuhann

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated Working Paper SeriesMacroeconomic effects of secondary market trading Daniel NeuhannDisclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. No 2039 / March 2017 ECB -Lamfalussy Fellowship Programme Lamfalussy FellowshipsThis paper has been produced under the ECB Lamfalussy Fellowship programme. This programme was launched in 2003 in the context of the ECB-CFS Research Network on "Capital Markets and Financial Integration in Europe". It aims at stimulating high-quality research on the structure, integration and performance of the European financial system. The Fellowship programme is named after Baron Alexandre Lamfalussy, the first President of the European Monetary Institute. Mr Lamfalussy is one of the leading central bankers of his time and one of the main supporters of a single capital market within the European Union.Each year the programme sponsors five young scholars conducting a research project in the priority areas of the Network. The Lamfalussy Fellows and their projects are chosen by a selection committee composed of Eurosystem experts and academic scholars. Further information about the Network can be found at http://www.eufinancial-system.org and about the Fellowship programme under the menu point "fellowships". ECB Working Paper 2039, March 2017 1 AbstractThis paper develops a theory of the credit cycle to account for recent evidence that capital is increasingly allocated to inefficiently risky projects over the course of the boom. The model features lenders who sell risk exposure to non-lender investors in order to relax borrowing constraints, but are tempted to produce and sell off bad assets when asset prices are sufficiently high. Asset prices gradually increase during the boom because non-lender wealth grows as their risk-taking pays off, triggering a fall in asset quality and precipit...

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Reputation and Persistence of Adverse Selection in Secondary Loan Markets

Cited by 59 publications

References 48 publications

Wholesale Funding Dry‐Ups

Wholesale Funding Dry‐Ups

BETWEEN‐GROUP ADVERSE SELECTION: EVIDENCE FROM GROUP CRITICAL ILLNESS INSURANCE

Macroeconomic Effects of Secondary Market Trading

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