The DOI matches its Crossref record; 18 of the 18 references it cites were found in a registry or an index.
The Pooling and Tranching of Securities: A Model of Informed Intermediation
Open accessAbstract
I show that when an issuer has superior information about the value of its assets, it is better off selling assets separately rather than as a pool due to the information destruction effect of pooling. If, however, the issuer can create a derivative security that is collateralized by the assets, pooling and “tranching” may be optimal. If the residual risk of each asset is not highly correlated, tranching allows the issuer to exploit the risk diversification effect of pooling to create a low-risk and highly liquid security. In contrast, for an uninformed seller, pure pooling reduces underpricing and is preferred to separate asset sales. These results lead to a dynamic model of financial intermediation: originators sell pools of assets, some of which are purchased by informed intermediaries who then further pool and tranche them. Pooling and tranching allow intermediaries to leverage their capital more efficiently, enhancing the returns to their private information.
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Cites
The Market for "Lemons": Quality Uncertainty and the Market Mechanism
Akerlof, G. A. (1970) · The Quarterly Journal of Economics · doi:10.2307/1879431 · Cited by 23,016
Financial intermediation and delegated monitoring
Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476
INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION
Brealey, R., Leland, H. E., & Pyle, D. H. (1977) · The Journal of Finance · doi:10.1111/j.1540-6261.1977.tb03277.x · Cited by 4,055
Informational Asymmetries, Financial Structure, and Financial Intermediation
Leland, H. E., & Pyle, D. H. (1977) · The Journal of Finance · doi:10.2307/2326770 · Cited by 3,760
Signaling Games and Stable Equilibria
Cho, I.-K., & Kreps, D. M. (1987) · The Quarterly Journal of Economics · doi:10.2307/1885060 · Cited by 3,201
Why new issues are underpriced
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Financial Intermediaries and Liquidity Creation
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A Liquidity-based Model of Security Design
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Self-citationSeniority and maturity of debt contracts
Diamond, D. W. (1993) · Journal of Financial Economics · doi:10.1016/0304-405x(93)90011-y · Cited by 642
Cited by
GENNAIOLI, N., SHLEIFER, A., & VISHNY, R. W. (2013) · The Journal of Finance · doi:10.1111/jofi.12031 · Cited by 441
An Empirical Analysis of the Pricing of Collateralized Debt Obligations
LONGSTAFF, F. A., & RAJAN, A. (2008) · The Journal of Finance · doi:10.1111/j.1540-6261.2008.01330.x · Cited by 299
Politicizing Debt and Denaturalizing the ‘New Normal’
Roberts, A., & Soederberg, S. (2014) · Critical Sociology · doi:10.1177/0896920514528820 · Cited by 52
Metadata
- Authors
- DeMarzo, P. M.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2004-08-25
- Volume
- 18
- Issue
- 1
- Pages
- 1-35
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2133800243
- Cited by
- 631
- References
- 18
- FWCI
- 30.18
- Type
- journal article
- Language
- en
- Open access
- green
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
