Working Paper: NBER ID: w24180
Authors: Manuel Adelino; Kris Gerardi; Barney Hartman-Glaser
Abstract: 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.
Keywords: mortgage market; adverse selection; signaling; trade delays
JEL Codes: D0; G0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| time to sale (C41) | default risk (G33) |
| time to sale (C41) | mortgage performance (G21) |
| observable credit risk measures (G33) | time to sale (C41) |
| time to sale (C41) | signaling cost (L96) |
| default risk (G33) | mortgage performance (G21) |
| time to sale (C41) | asymmetric information (D82) |
| affiliated entities (Y80) | time to sale (C41) |