Begley, T A and Purnanandam, A (2016) Design of financial securities: empirical evidence from private-label RMBS deals. Review of Financial Studies, 30 (1). pp. 120-161. ISSN 0893-9454
Abstract
We study the key drivers of security design in the residential mortgage-backed security (RMBS) market during the run-up to the subprime mortgage crisis. We show that deals with a higher level of equity tranche have a significantly lower delinquency rate conditional on observable loan characteristics. The effect is concentrated within pools with a higher likelihood of asymmetric information between deal sponsors and potential buyers of the securities. Further, securities sold from high-equity-tranche deals command higher prices conditional on their credit ratings. Overall, our results show that the goal of security design in this market was not only to exploit regulatory arbitrage, but also to mitigate information frictions that were pervasive in this market.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Additional Information: |
This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Financial Studies following peer review. The version of record: Taylor A. Begley, Amiyatosh Purnanandam; 'Design of financial securities: empirical evidence from private-label RMBS deals', Review of Financial Studies (2017) 30(1) pp.120-161, is available online at: https://academic.oup.com/rfs/article/30/1/120/2669961/Design-of-Financial-Securities-Empirical-Evidence and at: https://doi.org/10.1093/rfs/hhw056 |
Date Deposited: | 21 Dec 2016 14:11 |
Date of first compliant deposit: | 16 Dec 2016 |
Subjects: |
Securities markets Securities Mortgages |
Last Modified: | 12 Nov 2024 02:35 |
URI: | https://lbsresearch.london.edu/id/eprint/844 |