Strategic Trade when Securitized Portfolio Values Are Unknown

102 Pages Posted: 21 Jun 2017 Last revised: 24 Aug 2020

See all articles by Louis R. Piccotti

Louis R. Piccotti

Oklahoma State University - Stillwater - Spears School of Business

Date Written: June 2020

Abstract

I examine the effect that the precision of securitization has on the market
quality of the underlying asset, as well as focus on the market quality of the
derivative asset. With securitization, the underlying portfolio has improved liquidity, the trading intensity of an informed trader is increased, and the informed
trader’s expected profit is increased. When arbitrageurs are discretionary, jumps
in illiquidity can occur. The combination of the underlying portfolio and derivative portfolio prices are revealing about the unknown liquidation value of the
underlying portfolio and the derivative price is also revealing about the unknown
tracking error.

Keywords: Strategic trade, Market microstructure, Securitization, Price discovery

JEL Classification: G12, G13, G14

Suggested Citation

Piccotti, Louis R., Strategic Trade when Securitized Portfolio Values Are Unknown (June 2020). Journal of Banking and Finance, Vol. 115, No. June, 2020, Available at SSRN: https://ssrn.com/abstract=2989684 or http://dx.doi.org/10.2139/ssrn.2989684

Louis R. Piccotti (Contact Author)

Oklahoma State University - Stillwater - Spears School of Business ( email )

460 Business
Stillwater, OK 74078-0555
United States

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