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.
Financial crisis, Securitizations, Subprime, Mortgages, Off-balance-sheet
Finance and Financial Management | Portfolio and Security Analysis
Corporate Reporting and Disclosure
Review of Accounting Studies
Springer Verlag (Germany)
DOU, Yiwei; LIU, Yanju; RICHARDSON, Gordon; VYAS; and Dushyantkumar.
The risk-relevance of securitizations during the recent financial crisis. (2014). Review of Accounting Studies. 19, (2), 839-876. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1571
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