Publication Type

Journal Article

Publication Date

1-2014

Abstract

We investigate the changing risk-relevance of securitized subprime, other non-conforming, andcommercial mortgages for sponsor-originators (S-Os) during the recent financial crisis. Usingvolatility of realized stock returns, option-implied volatility, and credit spreads, we observe apronounced increase in the risk-relevance for subprime securitizations as early as 2006.Furthermore, reflecting the evolution of the financial crisis in waves, we find that investorsrecognized the increased credit riskiness of other non-conforming and commercial mortgagesecuritizations as the financial crisis progressed. Additional analyses show that the risk-relevanceresults vary cross-sectionally with issue characteristics such as monoline credit-enhancement andthe existence of special servicers or B-piece buyers. Our results potentially inform currentdebates on the opacity of securitization structures, and highlight that the evaluation of riskrelevanceof securitized assets should take into account heterogeneity in collateral and structurecharacteristics, both cross-sectionally and inter-temporally.

Keywords

Financial crisis, Securitizations, Subprime, Mortgages, Off-balance-sheet

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Corporate Reporting and Disclosure

Publication

Review of Accounting Studies

Volume

19

Issue

2

First Page

839

Last Page

876

ISSN

1380-6653

Publisher

Springer Verlag (Germany)

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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