The subprime asset-backed securities market and the equity prices of large complex financial institutions
AbstractIn this paper, we investigate the relationship between the subprime asset-backed collateralized debt obligations (CDO) market and Large Complex Financial Institutions (LCFIs). We attempt to account for the dynamics between the ABX index returns and the banks' equity returns through conditioning our analysis on the historical correlation between the variables. Three key results emerge from the analysis. First, we find a positive correlation between movements of the ABX index and the equity returns for all the LCFIs. Second, the volatility of ABX index returns tend to be transmitted to the volatilities of the equity returns of the financial institutions. Third, ABX prices changes lead equity returns changes of the European-based LCFIs. For the US LCFIs a two-way linkage emerges.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 21 (2011)
Issue (Month): 4 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/intfin
ABX index Subprime market Contagion Equity returns Large complex financial institutions;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dwyer, Gerald P. & Tkac, Paula, 2009.
"The financial crisis of 2008 in fixed-income markets,"
Journal of International Money and Finance,
Elsevier, vol. 28(8), pages 1293-1316, December.
- Gerald P. Dwyer & Paula Tkac, 2009. "The financial crisis of 2008 in fixed income markets," Working Paper 2009-20, Federal Reserve Bank of Atlanta.
- Adrian, T. & Shin, H S., 2008. "Liquidity and financial contagion," Financial Stability Review, Banque de France, issue 11, pages 1-7, February.
- Shleifer, Andrei & Vishny, Robert W., 2010.
Journal of Financial Economics,
Elsevier, vol. 97(3), pages 306-318, September.
- Longstaff, Francis A., 2010. "The subprime credit crisis and contagion in financial markets," Journal of Financial Economics, Elsevier, vol. 97(3), pages 436-450, September.
- Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
- Bruce Mizrach, 2008. "Jump and Cojump Risk in Subprime Home Equity Derivatives," Departmental Working Papers 200802, Rutgers University, Department of Economics.
- Hildebrand, Philipp M., 2008. "The sub-prime crisis: A central banker's perspective," Journal of Financial Stability, Elsevier, vol. 4(4), pages 313-320, December.
- Gary Gorton, 2009.
"Information, Liquidity, and the (Ongoing) Panic of 2007,"
American Economic Review,
American Economic Association, vol. 99(2), pages 567-72, May.
- Gary B. Gorton, 2009. "Information, Liquidity, and the (Ongoing) Panic of 2007," NBER Working Papers 14649, National Bureau of Economic Research, Inc.
- Claudio E. V. Borio, 2003. "Towards a macroprudential framework for financial supervision and regulation?," BIS Working Papers 128, Bank for International Settlements.
- Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.