European Business Schools Librarian's Group
ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School
No WP1107: Experimental Evidence on the ‘Insidious’ Illiquidity Risk
Radu Vranceanu () and Damien Besancenot ()
Additional contact information
Radu Vranceanu: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY PONTOISE Cedex, FRANCE
Damien Besancenot: Université Paris 13
Abstract: This paper brings experimental evidence on investors’ behavior subject to an "illiquidity" constraint, where the success of a risky project depends on the participation of a minimum number of investors. The experiment is set up as a frameless coordination game that replicates the investment context. Results confirm the insidious nature of the illiquidity risk: as long as a first illiquidity default does not occur, investors do not seem able to fully internalize it. After several defaults, agents manage to coordinate on a default probability above which they refuse to participate to the project. This default probability is lower than the default probability of the first illiquidity default.
Keywords: Coordination game; Illiquidity risk; Threshold strategy; Experimental economics
27 pages, July 13, 2011
Full text files
WP1107.pdf
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