The risk-relevance of securitizations during the recent financial crisis

We investigate changes in the risk-relevance of securitized subprime, other nonconforming, and commercial mortgages for sponsor-originators during the recent financial crisis. Using the volatility of realized stock returns, option-implied volatility, and credit spreads, we observe a pronounced incre...

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Main Authors: DOU, Yiwei, LIU, Yanju, RICHARDSON, Gordon, VYAS, Dushyantkumar
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Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/soa_research/1571
https://ink.library.smu.edu.sg/context/soa_research/article/2598/viewcontent/f4a6b88636e259273633de8d7355d49a4245.pdf
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spelling sg-smu-ink.soa_research-25982020-01-20T09:37:14Z The risk-relevance of securitizations during the recent financial crisis DOU, Yiwei LIU, Yanju RICHARDSON, Gordon VYAS, Dushyantkumar We investigate changes in the risk-relevance of securitized subprime, other nonconforming, and commercial mortgages for sponsor-originators during the recent financial crisis. Using the volatility of realized stock returns, option-implied volatility, and credit spreads, we observe a pronounced increase in the risk-relevance of subprime securitizations as early as 2006. Furthermore, reflecting the evolution of the financial crisis in waves, we find that investors recognized the increased credit risk of other nonconforming and commercial mortgage securitizations as the financial crisis progressed. Additional analyses show that risk-relevance varies cross-sectionally with structural characteristics such as monoline credit-enhancement and the presence of special servicers for commercial mortgage securitizations. Our results inform the current debates on the opacity of securitization structures and highlight the need to take into account cross-sectional and inter-temporal heterogeneity in risk-relevance across securitized asset classes and securitization characteristics (e.g., quality and type of collateral and transaction structure). 2014-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1571 info:doi/10.1007/s11142-013-9265-4 https://ink.library.smu.edu.sg/context/soa_research/article/2598/viewcontent/f4a6b88636e259273633de8d7355d49a4245.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Financial crisis Securitizations Subprime Mortgages Off-balance-sheet Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Financial crisis
Securitizations
Subprime
Mortgages
Off-balance-sheet
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle Financial crisis
Securitizations
Subprime
Mortgages
Off-balance-sheet
Finance and Financial Management
Portfolio and Security Analysis
DOU, Yiwei
LIU, Yanju
RICHARDSON, Gordon
VYAS, Dushyantkumar
The risk-relevance of securitizations during the recent financial crisis
description We investigate changes in the risk-relevance of securitized subprime, other nonconforming, and commercial mortgages for sponsor-originators during the recent financial crisis. Using the volatility of realized stock returns, option-implied volatility, and credit spreads, we observe a pronounced increase in the risk-relevance of subprime securitizations as early as 2006. Furthermore, reflecting the evolution of the financial crisis in waves, we find that investors recognized the increased credit risk of other nonconforming and commercial mortgage securitizations as the financial crisis progressed. Additional analyses show that risk-relevance varies cross-sectionally with structural characteristics such as monoline credit-enhancement and the presence of special servicers for commercial mortgage securitizations. Our results inform the current debates on the opacity of securitization structures and highlight the need to take into account cross-sectional and inter-temporal heterogeneity in risk-relevance across securitized asset classes and securitization characteristics (e.g., quality and type of collateral and transaction structure).
format text
author DOU, Yiwei
LIU, Yanju
RICHARDSON, Gordon
VYAS, Dushyantkumar
author_facet DOU, Yiwei
LIU, Yanju
RICHARDSON, Gordon
VYAS, Dushyantkumar
author_sort DOU, Yiwei
title The risk-relevance of securitizations during the recent financial crisis
title_short The risk-relevance of securitizations during the recent financial crisis
title_full The risk-relevance of securitizations during the recent financial crisis
title_fullStr The risk-relevance of securitizations during the recent financial crisis
title_full_unstemmed The risk-relevance of securitizations during the recent financial crisis
title_sort risk-relevance of securitizations during the recent financial crisis
publisher Institutional Knowledge at Singapore Management University
publishDate 2014
url https://ink.library.smu.edu.sg/soa_research/1571
https://ink.library.smu.edu.sg/context/soa_research/article/2598/viewcontent/f4a6b88636e259273633de8d7355d49a4245.pdf
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