Systematic and liquidity risk in subprime-mortgage backed securities

Mardi Dungey, Gerald Dwyer and Thomas Flavin

No 2011-15, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: 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: 2011
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-ure
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Related works:
Journal Article: Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities (2013)
Working Paper: Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities (2011)
Working Paper: Systematic and Liquidity Risk in Subprime-Mortgage Backed SecuritiesM (2011)
Working Paper: Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities (2011)
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