The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis
We investigate the risk-relevance of securitized subprime, non-conforming and commercial mortgages for sponsor-originators during the recent financial crisis. Using volatility of realized stock returns and option-implied volatility, we observe a pronounced increase in the risk-relevance for subprime...
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sg-smu-ink.soa_research-18812012-08-08T09:06:25Z The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis LIU, Yanju Dou, Yiwei Richardson, Gordon Vyas, Dushyantkumar We investigate the risk-relevance of securitized subprime, non-conforming and commercial mortgages for sponsor-originators during the recent financial crisis. Using volatility of realized stock returns and option-implied volatility, we observe a pronounced increase in the risk-relevance for subprime securitizations as early as 2006. In other words, equity investors of subprime mortgage securitizers recognized the unfolding subprime risk and its retention by sponsor-originators as early as 2006. Furthermore, reflecting the notion that the financial crisis evolved in waves, we find that equity investors recognized the risk-retention of other non-conforming and commercial mortgage securitizations as the riskiness of the collateral became apparent later on during the crisis. Thus, our results indicate that risk-relevance of securitized assets for sponsor-originators evolved inter-temporally as the characteristics of these securitized assets changed over time. Additional analyses show that the risk-relevance results vary cross-sectionally with issue and firm characteristics such as monoline credit-enhancement, existence of special servicers or B-piece buyers, SEC registration status, and underwriter reputation. Our results potentially inform the current debates on the opacity of securitization structures, and the risk-retention requirements outlined in the recently enacted Dodd-Frank Wall Street Reform Bill. In particular, our study highlights that the evaluation of risk-relevance of securitization entities should take into account heterogeneity in collateral and structure characteristics, both cross-sectionally and inter-temporally. 2011-01-01T08:00:00Z text https://ink.library.smu.edu.sg/soa_research/882 http://www4.gsb.columbia.edu/filemgr?file_id=7219631 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting Real Estate |
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We investigate the risk-relevance of securitized subprime, non-conforming and commercial mortgages for sponsor-originators during the recent financial crisis. Using volatility of realized stock returns and option-implied volatility, we observe a pronounced increase in the risk-relevance for subprime securitizations as early as 2006. In other words, equity investors of subprime mortgage securitizers recognized the unfolding subprime risk and its retention by sponsor-originators as early as 2006. Furthermore, reflecting the notion that the financial crisis evolved in waves, we find that equity investors recognized the risk-retention of other non-conforming and commercial mortgage securitizations as the riskiness of the collateral became apparent later on during the crisis. Thus, our results indicate that risk-relevance of securitized assets for sponsor-originators evolved inter-temporally as the characteristics of these securitized assets changed over time. Additional analyses show that the risk-relevance results vary cross-sectionally with issue and firm characteristics such as monoline credit-enhancement, existence of special servicers or B-piece buyers, SEC registration status, and underwriter reputation. Our results potentially inform the current debates on the opacity of securitization structures, and the risk-retention requirements outlined in the recently enacted Dodd-Frank Wall Street Reform Bill. In particular, our study highlights that the evaluation of risk-relevance of securitization entities should take into account heterogeneity in collateral and structure characteristics, both cross-sectionally and inter-temporally. |
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LIU, Yanju Dou, Yiwei Richardson, Gordon Vyas, Dushyantkumar |
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LIU, Yanju Dou, Yiwei Richardson, Gordon Vyas, Dushyantkumar |
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LIU, Yanju |
title |
The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis |
title_short |
The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis |
title_full |
The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis |
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The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis |
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The Risk-Relevance of Securitized Mortgages during the Recent Financial Crisis |
title_sort |
risk-relevance of securitized mortgages during the recent financial crisis |
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Institutional Knowledge at Singapore Management University |
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2011 |
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https://ink.library.smu.edu.sg/soa_research/882 http://www4.gsb.columbia.edu/filemgr?file_id=7219631 |
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