Secondary Market Liquidity and Security Design: Theory and Evidence from ABS Markets

We develop and empirically test a theory of optimal security design under adverse selection accounting for strategic trading by uninformed investors who will liquidate a security in secondary markets only if their idiosyncratic carrying costs exceed the security's expected trading loss. Such investors demand primary market discounts equaling expected carrying costs borne plus trading losses incurred. Issuers minimize the total illiquidity discount by splitting cash-flow into tranched debt claims with liquidity predicted to increase with seniority, while the optimal number of tranches increases with underlying cash-flow risk. Empirical tests confirm our model predictions

Determinants of government bond spreads in the euro area: in good times as in bad

Despite the single currency, yields on government bonds in the Euro Area deviate substantially from German bond yields. These bond spreads are usually attributed to differing default and liquidity risks. The empirical literature documents that evaluation of these risks is subject to time variation in global factors approximated by US corporate bond spreads or short term interest rates. Within this paper time variation is modeled via latent processes instead of proxy variables. The findings suggest that default risk measured via expected debt to gross national product ratio explains a major part of the differences in band yields in the Euro area between 2003 and the unfolding of the financial crises. During the financial crises both risks gain importance in explaining bond spreads, with increased relative importance of liquidity risks compared to default risks or their market perception

Who Leaves and When? – Selective Outmigration of Immigrants from Germany

This paper provides new evidence on the outmigration behaviour of foreign-born immigrants. Our analysis is based on data from the German Socio-Economic Panel covering the period 1984 to 2010. A unique feature of our paper is the use of new data from panel-drop out studies, which allows us to identify outmigration. As statistical technique, we employ penalized spline smoothing in the context of a Poisson-type Generalized Additive Mixed Model (GAMM), which enables us to incorporate bivariate interaction effects. For Non-Turkish immigrants we find a u-shaped pattern between human capital endowment and outmigration. For Turkish immigrants, outmigration is characterized by a positive self-selection with respect to skill intensifying the initial negative selection process. In addition to this, family characteristics have strong effects on emigration decisions. Finally, our results highlight substantial variation in outmigration behaviour during the life cycle