To Pool or Not to Pool? Security Design in OTC Markets / Vincent Glode, Christian C. Opp, Ruslan Sverchkov.

By:

Glode, Vincent

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w27361.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

D82 - Asymmetric and Private Information • Mechanism Design
G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill
L14 - Transactional Relationships • Contracts and Reputation • Networks

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Abstract: We study security issuers' decision whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Unlike in competitive markets, pooling assets may be suboptimal in the presence of market power - both privately and socially - in particular, when the potential gains from trade are large. In these cases, pooling assets reduces the elasticity of trade volume in the relevant part of the payoff distribution, exacerbating inefficient rationing associated with the exercise of market power. Our results shed light on recently observed time-variation in the prevalence of pooling in financial markets.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w27361 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

June 2020.

We study security issuers' decision whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Unlike in competitive markets, pooling assets may be suboptimal in the presence of market power - both privately and socially - in particular, when the potential gains from trade are large. In these cases, pooling assets reduces the elasticity of trade volume in the relevant part of the payoff distribution, exacerbating inefficient rationing associated with the exercise of market power. Our results shed light on recently observed time-variation in the prevalence of pooling in financial markets.