Derivatives usage, securitization, and the crash sensitivity of bank stocks
Rouven Trapp and
Gregor N.F. Weiß
Journal of Banking & Finance, 2016, vol. 71, issue C, 183-205
We show that the information on derivatives usage and securitization activities of U.S. banks as disclosed in their pre-crisis 10-K filings explains extreme equity returns of banks during the financial crisis. Stocks of banks that had previously disclosed a more extensive use of financial derivatives and loan securitization were more likely to experience extreme losses. Our findings are consistent with investors viewing banks that used derivatives for non-hedging purposes as highly vulnerable to the crisis. Moreover, banks which had significant securitization activities and were thus potentially exposed to under-capitalized risks from conduits possess a higher vulnerability of their equity to market downturns.
Keywords: Financial crisis; Equity tail risk; Derivatives; Securitization; Risk disclosure (search for similar items in EconPapers)
JEL-codes: G32 M40 G01 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:71:y:2016:i:c:p:183-205
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