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Securitization and asset prices

Author

Listed:
  • Yunus Aksoy

    (BIRKBECK, UNIVERSITY OF LONDON)

  • Henrique S. Basso

    (Banco de España)

Abstract

We investigate the link between securitization and asset prices and show that increases in the growth rate of the volume of ABS issuance lead to a sizable decline in bond and equity premia. Furthermore, we show that in a model where banks select their portfolio of assets and create synthetic securities, the compensation for undertaking risk decreases as securitization increases. The pooling and tranching of credit assets relaxes both the funding and the risk constraints banks face allowing them to increase balance sheet holdings. Accordingly, the drop in risk premium may be unrelated to a decline in actual risk.

Suggested Citation

  • Yunus Aksoy & Henrique S. Basso, 2015. "Securitization and asset prices," Working Papers 1526, Banco de España.
    • Handle: RePEc:bde:wpaper:1526
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    Cited by:

    1. Wu, Binghui, 2018. "Asset securitization and rate of return: A study on letters of guarantee," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 1551-1554.

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    More about this item

    Keywords

    pooling and tranching; equity; government bonds; bank portfolio; risk premia;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services

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