Were There Fire Sales in the RMBS Market?

Craig B. Merrill, Taylor Nadauld, René Stulz and Shane M. Sherlund
Additional contact information
Craig B. Merrill: Brigham Young Unviersity and Wharton Financial Institutions Center, University of PA
Taylor Nadauld: Brigham Young University
Shane M. Sherlund: Federal Reserve Board

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Many observers have argued that the fall in RMBS prices during the crisis was partly caused by fire sales. We provide an explanation for why financial institutions may have engaged in fire sales using a unique dataset of RMBS transactions for insurance companies. We show that risk-sensitive capital requirements and mark-to-market accounting can jointly create incentives for capital-constrained financial institutions to engage in fire sales of stressed securities because the increased risk can make it too expensive to hold such securities. Further, we find that, in general, RMBS prices behaved as would be expected in the presence of fire sales.

JEL-codes: G01 G21 G22 G23 M41 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-ger
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2436887

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2014-09

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().