Show simple item record

dc.contributor.authorChemla, Gilles
dc.contributor.authorHennessy, Christopher A.
dc.date.accessioned2011-05-21T09:13:35Z
dc.date.available2011-05-21T09:13:35Z
dc.date.issued2011-03
dc.identifier.urihttps://basepub.dauphine.fr/handle/123456789/6312
dc.language.isoenen
dc.subjectSecuritizationen
dc.subjectSecurity Designen
dc.subjectIncentivesen
dc.subjectScreeningen
dc.subjectSkin-in-the-Gameen
dc.subjectOriginate-to-Distributeen
dc.subject.ddc332en
dc.subject.classificationjelG38en
dc.subject.classificationjelG32en
dc.subject.classificationjelG21en
dc.subject.classificationjelG14en
dc.titleOriginate-to-Distribute and Screening Incentivesen
dc.typeDocument de travail / Working paper
dc.contributor.editoruniversityotherLondon Business School;Royaume-Uni
dc.description.abstractenConventional wisdom holds that lax screening during the subprime boom was the inevitable result of the originate-to-distribute (OTD) business model under which originators retain zero interest in complex tranched securities (CDOs). This has led to calls for originators to maintain more skin-in-the-game (SITG) and curbs on CDOs. We examine these claims in a fully rational model where originators first choose screening effort and then use private information regarding value in deciding between signaling via retentions versus pooling at OTD cum optimally structured CDOs. Contrary to conventional wisdom, we show screening incentives can actually be stronger under OTD, but only if two conditions are met: orginators attach high value to immediate funding and informed trading drives prices sufficiently close to fundamentals. We argue that lax lending standards during the subprime boom can be understood as arising endogenously from insufficient informed trading in CDO markets. Limits on tranched CDOs are shown to be misguided. Tranching creates Arrow securities demanded by hedgers who serve as trading partners for informed speculators who drive prices closer to fundamentals. We also show that screening and no screening by originators can be self-fulfilling prophecies as changes in the probability distribution of CDO quality shift incentives for information acquisition. Finally, we show that bans on shorting alter speculator trading capital needs, decreasing (increasing) the informational efficiency of prices if the unconditional expected quality is high (low).en
dc.publisher.nameUniversité Paris-Dauphineen
dc.publisher.cityParisen
dc.identifier.citationpages39en
dc.description.sponsorshipprivateouien
dc.subject.ddclabelEconomie financièreen


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record