Event Women in EF
Elena Asparouhova on mitigating credit market bubbles
Elena Asparouhova (University of Utah) presented her paper “The Role of Financial Markets in Mitigating Credit Market Bubbles.”
In joint work with Peter Bossaerts, Dan Lu, and Anh Tran, Elena investigated how long an insolvent debtor can avoid default when survival is beneficial to creditors collectively, but individual creditors gain by forcing early repayment. Theory predicts that the debt is not rolled over and default is immediate. With 23 experimental sessions, default is never immediate, with or without secondary debt markets. With markets, prices do not reveal survival length but correlate with payoffs. Creditors are better off with markets, but markets exacerbate wealth inequality. Survival length is reduced upon repetition with the same cohort. When new creditors are introduced, survival length remains constant, even with access to default history. More insights in the working paper.
This event was posted by:
Sascha Füllbrunn
Sascha is an Associate Professor at Radboud University, Nijmegen School of Management, in Nijmegen (the Netherlands). He runs experiments to uncover decision-making behaviour and market performance next to non-finance-related projects.