Dienstag, 19. Februar 2019

Karthik Balakrishnan (London Business School) visiting FAccT Center Research Seminar

On February 15th 2019, Karthik Balakrishnan (London Business School) presented his current research topic "Symmetric Ignorance is Bliss: When does Transparency Reduce Liquidity?" (co-authored with Aytekin Ertan and Yun Lee, both from London Business School) at the WHU Research Seminar in Finance & Accounting.

Prior work shows that disclosure improves liquidity by reducing information asymmetry. However, an overlooked notion is that transparency could reduce liquidity by distorting symmetric ignorance. To shed light on the role of symmetric ignorance in the link between transparency and liquidity, the authors examine the secondary-market liquidity effects of increases in asset-level disclosures of mortgage -backed securities (MBSs). They find that anhanced disclosures reduce liquidity in the MBS market by 15%. This finding holds in the information  insensitive Region of the asset's payoff structure. In fact, greater transparency increases liquidity when the MBS has an equity-like pay-off-i.e., for Junior and equity tranches and when the underlying collateral Performance is poor.

Karthik Balakrishnan from London Business School