eprintid: 15362
rev_number: 16
eprint_status: archive
userid: 1482
importid: 105
dir: disk0/00/01/53/62
datestamp: 2014-07-09 17:28:06
lastmod: 2021-04-02 15:47:46
status_changed: 2016-12-09 14:22:41
type: monograph
metadata_visibility: no_search
creators_name: Farhi, Emmanuel
creators_name: Tirole, Jean
creators_idrefppn: 102558620
creators_idrefppn: 028736036
title: Liquid Bundles
ispublished: pub
subjects: subjects_ECO
abstract: The paper revisits and qualifies existing insights on security design. A rich literature
argues that tranching creates debt-like instruments that are robust to adverse
selection or discourage wasteful information acquisition. Yet, for a given information
structure, while tranching confines and liquefies the safe part of a cash flow (the insulation
effect), bundling makes the risky part more liquid (the trading adjuvant effect).
Moreover, tranching always has adverse welfare effects on information acquisition:
It encourages (discourages) information acquisition when it should be deterred (encouraged).
The paper provides conditions under which tranching reduces welfare
even when the insulation effect dominates the trading adjuvant effect. The paper’s
second contribution is to analyze the velocity of assets that are repeatedly traded. The
dynamic model can be nested into the static one and insights are shown to be closely
related to those on tranching. The central insight is that liquidity is self-fulfilling: A
perception of future illiquidity creates current illiquidity.
date: 2012-07
date_type: published
publisher: TSE Working Paper
official_url: http://tse-fr.eu/pub/26065
faculty: tse
divisions: tse
keywords: Liquidity
keywords: velocity
keywords: security design
keywords: tranching
keywords: information acquisition
language: en
has_fulltext: TRUE
subjectsJEL: JEL_D82
subjectsJEL: JEL_E51
subjectsJEL: JEL_G12
subjectsJEL: JEL_G14
view_date_year: 2012
full_text_status: public
monograph_type: working_paper
series: TSE Working Paper
volume: 12-328
pages: 43
institution: Universite Toulouse 1 Capitole
department: Toulouse School of Economics
book_title: TSE Working Paper
oai_identifier: oai:tse-fr.eu:26065
harvester_local_overwrite: department
harvester_local_overwrite: faculty
harvester_local_overwrite: site
harvester_local_overwrite: pages
harvester_local_overwrite: institution
harvester_local_overwrite: creators_idrefppn
oai_lastmod: 2016-12-05T18:51:14Z
oai_set: tse
site: ut1
citation:   Farhi, Emmanuel <https://www.idref.fr/102558620> and Tirole, Jean <https://www.idref.fr/028736036>  (2012) Liquid Bundles.  TSE Working Paper, n. 12-328     
document_url: https://publications.ut-capitole.fr/id/eprint/15362/1/Tirole_15362.pdf