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The Valuation of Complex Derivatives by Major Investment Firms: Empirical Evidence

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  • Bernardo, Antonio E
  • Cornell, Bradford

Abstract

This article examines the auction of a portfolio of collateralized mortgage obligations to major broker dealers and institutional investors. The unique data set allows the authors to analyze a number of important empirical questions related to the valuation of collateralized mortgage obligations by the bidders and the elasticity of demand for the securities. The results reveal that the valuations differ substantially, implying a significant elasticity of demand. Copyright 1997 by American Finance Association.

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  • Bernardo, Antonio E & Cornell, Bradford, 1997. "The Valuation of Complex Derivatives by Major Investment Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 52(2), pages 785-798, June.
    • Handle: RePEc:bla:jfinan:v:52:y:1997:i:2:p:785-98
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    Cited by:

    1. Bianchi, Milo & Jehiel, Philippe, 2020. "Bundlers' dilemmas in financial markets with sampling investors," Theoretical Economics, Econometric Society, vol. 15(2), May.
    2. Chen, An-Sing & Liaw, Gwohorng & Leung, Mark T., 2003. "Stock auction bidding behavior and information asymmetries: An empirical analysis using the discriminatory auction model framework," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 867-889, May.
    3. Gunther Capelle-Blancard, 2010. "Are derivatives dangerous?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00605908, HAL.
    4. René M. Stulz, 2004. "Should We Fear Derivatives?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 173-192, Summer.
    5. Milo Bianchi & Philippe Jehiel, 2019. "Bundling, Belief Dispersion, and Mispricing in Financial Markets," PSE Working Papers halshs-02183306, HAL.
    6. Sanjeev Arora & Boaz Barak & Markus Brunnermeier & Rong Ge, 2009. "Computational Complexity and Information Asymmetry in Financial Products," Working Papers 2009-1, Princeton University. Economics Department..
    7. Broer, Tobias, 2018. "Securitization bubbles: Structured finance with disagreement about default risk," Journal of Financial Economics, Elsevier, vol. 127(3), pages 505-518.
    8. Ulrike Malmendier & Young Han Lee, 2011. "The Bidder's Curse," American Economic Review, American Economic Association, vol. 101(2), pages 749-787, April.
    9. Guillaume Plantin, "undated". "Tranching," GSIA Working Papers 2005-E2, Carnegie Mellon University, Tepper School of Business.
    10. Abdul Halim, Zairihan & How, Janice & Verhoeven, Peter & Hassan, M. Kabir, 2020. "Asymmetric information and securitization design in Islamic capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    11. Bruce I. Carlin & Shimon Kogan, 2010. "Trading Complex Assets," NBER Working Papers 16187, National Bureau of Economic Research, Inc.
    12. Michael S. Gibson, 1997. "Information systems for risk management," International Finance Discussion Papers 585, Board of Governors of the Federal Reserve System (U.S.).
    13. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 28(1), pages 113-133, October.
    14. Martin Mayer, "undated". "Risk Reduction in the New Financial Architecture: Realities and Fallacies in International Financial Reform," Economics Public Policy Brief Archive ppb_56, Levy Economics Institute.
    15. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

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