Post-crisis Signals in Securitization: Evidence from Auto ABS

Elizabeth Klee and Chaehee Shin
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Chaehee Shin: https://www.federalreserve.gov/econres/chaehee-shin.htm

No 2020-042, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We find significant evidence of asymmetric information and signaling in post-crisis offerings in the auto asset-backed securities (ABS) market. Using granular regulatory reporting data, we are able to directly measure private information and quantify its effect on signaling and pricing. We show that lenders "self-finance'' unobservably higher-quality loans by holding these loans for longer periods to signal private information. This signal is priced in initial offerings of auto ABS and accurately predicts ex-post loan performance. We also demonstrate that our results are robust to exogenous shifts in the demand and supply of auto loans. Despite an environment of post-crisis enhanced transparency and securitization standards, signaling may be motivated by inattentive investors and regulations enforcing "no adverse selection'' in constructing ABS.

Keywords: Financial regulation; Securities markets; Signaling; Securitization; Asymmetric information; Auto loans (search for similar items in EconPapers)
JEL-codes: D82 G14 G23 (search for similar items in EconPapers)
Pages: 51 p.
Date: 2020-05-22
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-42

DOI: 10.17016/FEDS.2020.042

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