Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70653
Authors: 
Dungey, Mardi
Dwyer, Gerald P.
Flavin, Thomas
Year of Publication: 
2011
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2011-15
Abstract: 
The misevaluation of risk in securitized financial products is central to understanding the financial crisis of 2007 - 8. This paper characterizes the evolution of factors affecting collateralized debt obligations based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage effect, we show the increasing importance of a common factor on more senior tranches during the crisis. We examine this common factor and its relationship with spreads. We estimate the effects on the common factor of the financial crisis.
Subjects: 
asset-backed securities
subprime mortgages
financial crisis
factor models
Kalman filter
JEL: 
G12
G01
C32
Document Type: 
Working Paper

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