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FRB Atlanta Working Paper
Are Lemons Sold First? Dynamic Signaling in the Mortgage Market
A central result in the theory of adverse selection in asset markets is that informed sellers can signal quality and obtain higher prices by delaying trade. This paper provides some of the first evidence of a signaling mechanism through trade delays using the residential mortgage market as a laboratory. We find a strong relationship between mortgage performance and time to sale for privately securitized mortgages. Additionally, deals made up of more seasoned mortgages are sold at lower yields. These effects are strongest in the "Alt-A" segment of the market, where mortgages are often sold with incomplete hard information, and in cases where the originator and the issuer of mortgage-backed securities are not affiliated.
Cite this item
Manuel Adelino & Kristopher S. Gerardi & Barney Hartman-Glaser, Are Lemons Sold First? Dynamic Signaling in the Mortgage Market, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2016-8, 01 Jul 2016, revised 01 Mar 2018.
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
Keywords: mortgage markets; asymmetric information; signaling
This item with handle RePEc:fip:fedawp:2016-08
is also listed on EconPapers
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