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The ABX: how do the markets price subprime mortgage risk?

  • Ingo Fender
  • Martin Scheicher

The ABX family of indices has become a key barometer of subprime mortgage market conditions during the recent financial crisis. Simple regression analysis illustrates the relationship between observed index returns and proxies of default risk, interest rates, market liquidity and risk appetite. The results suggest that declining risk appetite and heightened concerns about market illiquidity have provided a sizeable contribution to the observed collapse in ABX prices since the summer of 2007.

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Article provided by Bank for International Settlements in its journal BIS Quarterly Review.

Volume (Year): (2008)
Issue (Month): (September)
Pages:

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Handle: RePEc:bis:bisqtr:0809h
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  1. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Research Paper 9706, Federal Reserve Bank of New York.
  2. Adam B. Ashcraft & Til Schuermann, 2008. "Understanding the securitization of subprime mortgage credit," Staff Reports 318, Federal Reserve Bank of New York.
  3. Jeffery D Amato & Eli M Remolona, 2003. "The credit spread puzzle," BIS Quarterly Review, Bank for International Settlements, December.
  4. Prasanna Gai & Nicholas Vause, 2006. "Measuring Investors' Risk Appetite," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
  5. Ying Huang & Salih Neftci & Ira Jersey, 2002. "What Drives Swap Spreads, Credit or Liquidity?," ICMA Centre Discussion Papers in Finance icma-dp2003-05, Henley Business School, Reading University.
  6. Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December.
  7. Bruce Mizrach, 2008. "Jump and Cojump Risk in Subprime Home Equity Derivatives," Departmental Working Papers 200802, Rutgers University, Department of Economics.
  8. M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters, in: Regional Climate Change and Variability, chapter 1 Edward Elgar.
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