Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/60466 
Year of Publication: 
2012
Series/Report no.: 
Working Paper Series No. IF39V1
Publisher: 
Technische Universität Braunschweig, Institut für Finanzwirtschaft, Braunschweig
Abstract: 
Two factors have proven to be strongly relevant for the subprime mortgage crisis. The first is the lack of screening incentives of originators, which had not been anticipated by investors. The second is that investors relied too much on credit ratings. We examine whether investors have learned from these shortcomings. On the basis of securitizations from 2010 and 2011, we find that investors require a significantly higher risk premium when there is a high degree of asymmetric information. The credit spreads of information sensitive tranches are significantly higher if originators do not retain a part of the securitization or if they choose vertical slice retention instead of retaining the equity tranche. Moreover, the relevance of credit ratings in comparison to other credit factors has significantly decreased. Apparently, investors mainly consider ratings to discriminate between information sensitive and information insensitive tranches, beyond that they rely on their own risk analysis. This suggests that investors have learned their lesson from the subprime mortgage crisis.
Subjects: 
security design
asset-backed securities
retention
rating
credit spreads
JEL: 
G21
G24
G28
Document Type: 
Working Paper

Files in This Item:
File
Size
254.25 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.