Abstract: This paper studies the optimality of pooling and tranching for a privately informed security originator facing buyers endowed with market power (perhaps due to liquidity shortages). Contrary to the standard result that pooling and tranching are optimal practices, we find that selling assets separately may be preferred by originators as it weakens buyers' incentives to inefficiently screen them. Our results can shed light on observed time-variation in the practice of pooling and tranching in financial markets, in particular, the dramatic decline in the size of the ABS market following the most recent financial crisis.
FNCE611 – CORPORATE FINANCE
Executive MBA with Prof. Itay Goldstein, 2016-2019.
FNCE726 – ADVANCED CORPORATE FINANCE
MBA and UG with Prof. Christian Opp, 2016-2018.
BEPP805/305 – RISK MANAGEMENT
MBA and UG with Prof. Olivia S. Mitchell and Prof. Neil A. Doherty, 2016-2017.