The risk-relevance of securitizations during the recent financial crisis

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 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). http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

The risk-relevance of securitizations during the recent financial crisis

Loading next page...
 
/lp/springer_journal/the-risk-relevance-of-securitizations-during-the-recent-financial-LU8euGPwLg
Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-013-9265-4
Publisher site
See Article on Publisher Site

Abstract

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).

Journal

Review of Accounting StudiesSpringer Journals

Published: Dec 21, 2013

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from Google Scholar, PubMed
Create lists to organize your research
Export lists, citations
Access to DeepDyve database
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off