Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities

Mardi Dungey, Gerald Dwyer and Thomas Flavin

No 11817, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: The misevaluation of risk in securitized ?nancial products is central to understand- ing the Financial Crisis of 2007-2008. This paper characterizes the evolution of factors a¤ecting collateralized debt obligations (CDOs) 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 e¤ect, 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 e¤ects on the common factor of the ?nancial crisis.

Keywords: Consumer Economics: Theory; Consumer Economics: Empirical Analysis; Demographic Economics (search for similar items in EconPapers)
Pages: 44 pages
Date: 2011-08
New Economics Papers: this item is included in nep-ban and nep-ure
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Published by University of Tasmania, School of Economics & Finance -Thesis 2006

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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 securities (2011)
Working Paper: Systematic and Liquidity Risk in Subprime-Mortgage Backed SecuritiesM (2011)
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