Seminario "Information Span in Credit Market Competition"
Martes 26/11, 13.30h
Presentado por Cecilia Parlatore
Paper abstract
We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective (“soft”) information becomes more objective and concrete (“hard”). In a model with multidimensional fundamentals, two banks equipped with similar data processing systems possess hard signals about the borrower’s hard fundamentals, and the specialized bank, who further interacts with the borrower, can also assess the borrower’s soft fundamentals. Increasing the span of the hard information hardens soft information, enabling the data processing systems of both lenders to evaluate some of the borrower’s soft fundamentals. We show that hardening soft information levels the playing field for the non-specialized bank by reducing its winner’s curse. In contrast, increasing the precision or correlation of hard signals often strengthens the informational advantage of the specialized bank.
*Jointly written with Zhiguo He & Jing Huang
Cecilia Parlatore
Ph.D. in Economics, New York University. Associate Professor of Finance at New York University, Stern School of Business. Her research combines tools commonly used in macroeconomics and information theory to study liquidity provision, regulation, and information frictions in two broad areas: intermediation in banking and intermediation in financial markets.
We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective (“soft”) information becomes more objective and concrete (“hard”). In a model with multidimensional fundamentals, two banks equipped with similar data processing systems possess hard signals about the borrower’s hard fundamentals, and the specialized bank, who further interacts with the borrower, can also assess the borrower’s soft fundamentals. Increasing the span of the hard information hardens soft information, enabling the data processing systems of both lenders to evaluate some of the borrower’s soft fundamentals. We show that hardening soft information levels the playing field for the non-specialized bank by reducing its winner’s curse. In contrast, increasing the precision or correlation of hard signals often strengthens the informational advantage of the specialized bank.
*Jointly written with Zhiguo He & Jing Huang
Cecilia Parlatore
Ph.D. in Economics, New York University. Associate Professor of Finance at New York University, Stern School of Business. Her research combines tools commonly used in macroeconomics and information theory to study liquidity provision, regulation, and information frictions in two broad areas: intermediation in banking and intermediation in financial markets.