Adverse Selection, Reputation and Sudden Collapses in Secondary Loan Markets

56 Pages Posted: 18 May 2012

See all articles by Varadarajan V. Chari

Varadarajan V. Chari

University of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Ali Shourideh

University of Pennsylvania - Finance Department

Ariel Zetlin-Jones

University of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis

Multiple version iconThere are 2 versions of this paper

Date Written: May 9, 2011

Abstract

Loan originators often securitize some loans in secondary loan markets and hold on to others. New issuances in such secondary markets collapse abruptly on occasion, typically when collateral values used to secure the underlying loans fall and these collapses are viewed by policymakers as inefficient. We develop a dynamic adverse selection model in which small eductions in that a variety of policies intended to remedy market inefficiencies do not do so.

Suggested Citation

Chari, Varadarajan V. and Shourideh, Ali and Zetlin-Jones, Ariel, Adverse Selection, Reputation and Sudden Collapses in Secondary Loan Markets (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=2062361 or http://dx.doi.org/10.2139/ssrn.2062361

Varadarajan V. Chari

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
1108 Management & Economics
Minneapolis, MN 55455
United States
612-626-7151 (Phone)

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ali Shourideh

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Ariel Zetlin-Jones (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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