Systematic and liquidity risk in subprime-mortgage backed securities
The misevaluation of risk in securitized financial products is central to understanding the financial crisis of 2007–8. This paper characterizes the evolution of factors affecting collateralized debt obligations based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage effect, we show the increasing importance of a common factor on more senior tranches during the crisis. We examine this common factor and its relationship with spreads. We estimate the effects on the common factor of the financial crisis.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309|
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Yuliya Demyanyk & Otto Van Hemert, 2009.
"Understanding the subprime mortgage crisis,"
Federal Reserve Bank of San Francisco, issue Jan.
- Ingo Fender & Martin Scheicher, 2009.
"The pricing of subprime mortgage risk in good times and bad: evidence from the ABX.HE indices,"
BIS Working Papers
279, Bank for International Settlements.
- Ingo Fender & Martin Scheicher, 2009. "The pricing of subprime mortgage risk in good times and bad: evidence from the ABX.HE indices," Applied Financial Economics, Taylor & Francis Journals, vol. 19(24), pages 1925-1945.
- BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen, 2003.
"Multivariate GARCH models: a survey,"
CORE Discussion Papers
2003031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.
- Diebold, Francis X & Nerlove, Marc, 1989. "The Dynamics of Exchange Rate Volatility: A Multivariate Latent Factor Arch Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-21, Jan.-Mar..
- Francis A. Longstaff & Brett Myers, 2009. "Valuing Toxic Assets: An Analysis of CDO Equity," NBER Working Papers 14871, National Bureau of Economic Research, Inc.
- Francis A. Longstaff & Arvind Rajan, 2008.
"An Empirical Analysis of the Pricing of Collateralized Debt Obligations,"
Journal of Finance,
American Finance Association, vol. 63(2), pages 529-563, 04.
- Francis A. Longstaff & Arvind Rajan, 2006. "An Empirical Analysis of the Pricing of Collateralized Debt Obligations," NBER Working Papers 12210, National Bureau of Economic Research, Inc.
- 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.
- Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2012.
"How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads,"
21, National Bank of Serbia.
- Eichengreen, Barry & Mody, Ashoka & Nedeljkovic, Milan & Sarno, Lucio, 2012. "How the Subprime Crisis went global: Evidence from bank credit default swap spreads," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1299-1318.
- Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2009. "How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads," NBER Working Papers 14904, National Bureau of Economic Research, Inc.
- Gabriella Chiesa, 2008.
"Optimal Credit Risk Transfer, Monitored Finance, and Banks,"
EIEF Working Papers Series
0811, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2008.
- Chiesa, Gabriella, 2008. "Optimal credit risk transfer, monitored finance, and banks," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 464-477, October.
- 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.
- Annastiina Silvennoinen & Timo Teräsvirta, 2008.
"Multivariate GARCH models,"
CREATES Research Papers
2008-06, Department of Economics and Business Economics, Aarhus University.
- Silvennoinen, Annastiina & Teräsvirta, Timo, 2007. "Multivariate GARCH models," SSE/EFI Working Paper Series in Economics and Finance 669, Stockholm School of Economics, revised 18 Jan 2008.
- 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 A. Tkac, 2009. "The financial crisis of 2008 in fixed income markets," FRB Atlanta Working Paper 2009-20, Federal Reserve Bank of Atlanta.
- Efraim Benmelech & Jennifer Dlugosz, 2009.
"The Alchemy of CDO Credit Ratings,"
NBER Working Papers
14878, National Bureau of Economic Research, Inc.
- Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
- Stijn Claessens & Luc Laeven & Deniz O Igan & Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications from the Global Financial Crisis," IMF Working Papers 10/44, International Monetary Fund.
- Vance L. Martin & Mardi Dungey, 2007. "Unravelling financial market linkages during crises," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 89-119.
- Mardi Dungey & Vance L Martin & Adrian R Pagan, 2000. "A multivariate latent factor decomposition of international bond yield spreads," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 697-715.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Lumsdaine, Robin L, 1996. "Consistency and Asymptotic Normality of the Quasi-maximum Likelihood Estimator in IGARCH(1,1) and Covariance Stationary GARCH(1,1) Models," Econometrica, Econometric Society, vol. 64(3), pages 575-96, May.
When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:2011-15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elaine Clokey)
If references are entirely missing, you can add them using this form.