Are There Too Many Safe Securities? Securitization and the Incentives for Information Production

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Are There Too Many Safe Securities? Securitization and the Incentives for Information Production

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Title: Are There Too Many Safe Securities? Securitization and the Incentives for Information Production
Author: Hanson, Samuel Gregory; Sunderam, Aditya Vikram

Note: Order does not necessarily reflect citation order of authors.

Citation: Hanson, Samuel Gregory, and Aditya Vikram Sunderam. "Are There Too Many Safe Securities? Securitization and the Incentives for Information Production." Journal of Financial Economics (forthcoming). (Internet Appendix: http://www.people.hbs.edu/shanson/info_tranching_appendix_20120907.pdf)
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Abstract: We present a model that helps explain several past collapses of securitization markets. Originators issue too many informationally insensitive securities in good times, blunting investor incentives to become informed. The resulting endogenous scarcity of informed investors exacerbates primary market collapses in bad times. Inefficiency arises because informed investors are a public good from the perspective of originators. All originators benefit from the presence of additional informed investors in bad times, but each originator minimizes his reliance on costly informed capital in good times by issuing safe securities. Our model suggests regulations that limit the issuance of safe securities in good times.
Other Sources: http://www.hbs.edu/faculty/Pages/item.aspx?num=43637
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:10578869
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