This paper develops and estimates a monetary DSGE model with adverse selection in credit markets. The model features a new shock, referred as a lemons shock, which changes the riskiness of debtors in the mean-preserving spread sense with each debtor's riskiness unknown to a creditor. The...

This paper examines how the sentiment of firm-specific news affects CDS spreads conditional on the degree of information asymmetry. Using a large set of news releases, we document a strong negative relationship between the sentiment of firm-specific news and CDS spreads. More importantly,...

The information asymmetry between the borrower and the lender is a well-studied issue in the credit contracts. Various mechanisms (credit rationing, short-term debt, relationship banking, collateralization) have been discussed in the literature to reduce the asymmetry. This paper examines the...