Experimental Evidence on the 'Insidious' Illiquidity Risk

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.
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  • HAL Id : hal-00607867, version 2

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Damien Besancenot, Radu Vranceanu. Experimental Evidence on the 'Insidious' Illiquidity Risk. 2011, pp.27. ⟨hal-00607867v2⟩

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