IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v97y2024ics1062976924000917.html
   My bibliography  Save this article

Liquidity policies with opacity

Author

Listed:
  • Asano, Koji

Abstract

We examine liquidity policies in an environment in which banks can cover their liquidity needs by hoarding liquidity or selling long-term assets to expert investors. Investors can acquire costly information regarding asset quality and deprive banks with bad assets from accessing the asset market. To prevent expert scrutiny, banks must accept fire sale prices for their assets. These depressed prices induce banks to hoard inefficiently low (high) amounts of liquidity when the likelihood of a liquidity shock is relatively low (high). We show that policy interventions aimed at maintaining opacity in the asset market encourage (discourage) liquidity hoarding when there is underhoarding (overhoarding) of liquidity. This suggests that ex-post interventions can serve as substitutes for ex-ante liquidity regulations.

Suggested Citation

  • Asano, Koji, 2024. "Liquidity policies with opacity," The Quarterly Review of Economics and Finance, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:quaeco:v:97:y:2024:i:c:s1062976924000917
    DOI: 10.1016/j.qref.2024.101885
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976924000917
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2024.101885?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Camargo, Braz & Lester, Benjamin, 2014. "Trading dynamics in decentralized markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 153(C), pages 534-568.
    2. Jonathan Chiu & Thorsten V. Koeppl, 2016. "Trading Dynamics with Adverse Selection and Search: Market Freeze, Intervention and Recovery," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 969-1000.
    3. Jean Tirole, 2011. "Illiquidity and All Its Friends," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 287-325, June.
    4. Chiu, Jonathan & Koeppl, Thorsten V, 2016. "Trading dynamics with adverse selection and search: Market freeze, intervention and recovery," Working Paper Series 19475, Victoria University of Wellington, School of Economics and Finance.
    5. Thomas Philippon & Vasiliki Skreta, 2012. "Optimal Interventions in Markets with Adverse Selection," American Economic Review, American Economic Association, vol. 102(1), pages 1-28, February.
    6. Braz Camargo & Kyungmin Kim & Benjamin Lester, 2016. "Information Spillovers, Gains from Trade, and Interventions in Frozen Markets," The Review of Financial Studies, Society for Financial Studies, vol. 29(5), pages 1291-1329.
    7. Holmström, Bengt, 2013. "Inside and Outside Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262518536, December.
    8. Jean Tirole, 2012. "Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning," American Economic Review, American Economic Association, vol. 102(1), pages 29-59, February.
    9. Asano, Koji, 2024. "Managing financial expertise," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 351-365.
    10. Gorton, Gary & Pennacchi, George, 1990. "Financial Intermediaries and Liquidity Creation," Journal of Finance, American Finance Association, vol. 45(1), pages 49-71, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Toni Ahnert & Martin Kuncl, 2024. "Government Loan Guarantees, Market Liquidity, and Lending Standards," Management Science, INFORMS, vol. 70(7), pages 4502-4532, July.
    2. Fenghua Song & Anjan V. Thakor, 2023. "Market Freeze and Bank Capital Structure Heterogeneity," Management Science, INFORMS, vol. 69(3), pages 1856-1876, March.
    3. Toni Ahnert & Martin Kuncl, 2019. "Loan Insurance, Market Liquidity, and Lending Standards," Staff Working Papers 19-47, Bank of Canada.
    4. Heinsalu, Sander, 2020. "Investing to access an adverse selection market," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    5. Chen, Qi & Goldstein, Itay & Huang, Zeqiong & Vashishtha, Rahul, 2022. "Bank transparency and deposit flows," Journal of Financial Economics, Elsevier, vol. 146(2), pages 475-501.
    6. Robert Shimer & Ivan Werning, 2019. "Efficiency and information transmission in bilateral trading," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 154-176, July.
    7. Madison, Florian, 2019. "Frictional asset reallocation under adverse selection," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 115-130.
    8. Seyed Mohammadreza Davoodalhosseini, 2020. "Adverse Selection With Heterogeneously Informed Agents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1307-1358, August.
    9. Vincent Maurin, 2022. "Liquidity Fluctuations in Over‐the‐Counter Markets," Journal of Finance, American Finance Association, vol. 77(2), pages 1325-1369, April.
    10. Davoodalhosseini, Seyed Mohammadreza, 2022. "Optimal taxation in asset markets with adverse selection," European Economic Review, Elsevier, vol. 147(C).
    11. Michael Junho Lee & Daniel Neuhann, 2019. "A Dynamic Theory of Collateral Quality and Long-Term Interventions," Staff Reports 894, Federal Reserve Bank of New York.
    12. Wang, Zijian, 2020. "Liquidity and private information in asset markets: To signal or not to signal," Journal of Economic Theory, Elsevier, vol. 190(C).
    13. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    14. Taneli Mäkinen & Francesco Palazzo, 2017. "The double bind of asymmetric information in over-the-counter markets," Temi di discussione (Economic working papers) 1128, Bank of Italy, Economic Research and International Relations Area.
    15. Carré, Sylvain & Collin-Dufresne, Pierre & Gabriel, Franck, 2022. "Insider trading with penalties," Journal of Economic Theory, Elsevier, vol. 203(C).
    16. Lee, Michael Junho & Neuhann, Daniel, 2023. "Collateral quality and intervention traps," Journal of Financial Economics, Elsevier, vol. 147(1), pages 159-171.
    17. Changhyun Lee, 2024. "The outside option channel of central bank asset purchase programs: A tale of two crises," Working Papers 363, University of California, Davis, Department of Economics.
    18. Farhi, Emmanuel & Tirole, Jean, 2015. "Liquid bundles," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 634-655.
    19. Camargo, Braz & Lester, Benjamin, 2014. "Trading dynamics in decentralized markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 153(C), pages 534-568.
    20. Biswas, Sonny & Koufopoulos, Kostas, 2022. "Bank capital structure and regulation: Overcoming and embracing adverse selection," Journal of Financial Economics, Elsevier, vol. 143(3), pages 973-992.

    More about this item

    Keywords

    Liquidity; Information acquisition; Financial crisis; Liquidity regulation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:97:y:2024:i:c:s1062976924000917. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.
    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy