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The Rise and Fall of Demand for Securitizations

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  • Sergey Chernenko
  • Samuel G. Hanson
  • Adi Sunderam

Abstract

Collateralized debt obligations (CDOs) and private-label mortgage-backed securities (MBS) backed by nonprime loans played a central role in the recent financial crisis. Little is known, however, about the underlying forces that drove investor demand for these securitizations. Using micro-data on insurers’ and mutual funds’ bond holdings, we find considerable heterogeneity in investor demand for securitizations in the pre-crisis period. We argue that both investor beliefs and incentives help to explain this variation in demand. By contrast, our data paints a more uniform picture of investor behavior in the crisis. Consistent with theories of optimal liquidation, investors largely traded in more liquid securities such as government-guaranteed MBS to meet their liquidity needs during the crisis.

Suggested Citation

  • Sergey Chernenko & Samuel G. Hanson & Adi Sunderam, 2014. "The Rise and Fall of Demand for Securitizations," NBER Working Papers 20777, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20777
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    Cited by:

    1. Mr. Ehsan Ebrahimy, 2019. "Fire Sales in Frozen Markets," IMF Working Papers 2019/092, International Monetary Fund.
    2. Marco Di Maggio & Amir Kermani & Christopher Palmer, 2016. "How Quantitative Easing Works: Evidence on the Refinancing Channel," NBER Working Papers 22638, National Bureau of Economic Research, Inc.
    3. Felipe S. Iachan & Plamen T. Nenov & Alp Simsek, 2021. "The Choice Channel of Financial Innovation," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 333-372, April.
    4. Efing, Matthias, 2015. "Arbitraging the Basel securitization framework: Evidence from German ABS investment," Discussion Papers 40/2015, Deutsche Bundesbank.
    5. Nourzad, Farrokh & Hunter, William & Szczesniak, Katherine, 2020. "Securitization of revolving debt and its determinants," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 240-246.
    6. Ebrahimy, Ehsan, 2019. "Fire-sales in frozen markets," ESRB Working Paper Series 100, European Systemic Risk Board.

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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