Were there fire sales in the RMBS market?

Craig B. Merrill, Taylor D. Nadauld, René M. Stulz and Shane M. Sherlun

Journal of Monetary Economics, 2021, vol. 122, issue C, 17-37

Abstract: Many observers have argued that the fall in RMBS prices during the crisis was partly caused by fire sales. Using a unique dataset of RMBS transactions for insurance companies, we show evidence supportive of a role, at the transaction level, of forced sales that occurred at discounted prices relative to fundamentals, and find that the RMBS market behaved as a whole as would be expected in the presence of fire sales. We show that risk-sensitive capital requirements and mark-to-market accounting can jointly create incentives for financial institutions subject to adverse capital shocks to sell stressed securities.

Keywords: Fire sales; RMBS; Capital requirement; Mark-to-market accounting; Subprime crisis (search for similar items in EconPapers)
JEL-codes: G20 G21 G22 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:122:y:2021:i:c:p:17-37

DOI: 10.1016/j.jmoneco.2021.05.007

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