Do investors value frequent issuers in securitization?

Solomon Deku, Alper Kara and Nodirbek Karimov
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Alper Kara: University of Huddersfield
Nodirbek Karimov: University of Huddersfield

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 4, No 4, 1247-1282

Abstract: Abstract We assess the value of frequent issuers to investors in securitization markets by examining the initial yield spread of 6132 European mortgage-backed securities (MBS), covering a 20-year period between 1999 and 2018. We find that frequent issuers have certification value, and it increases as the credit cycle approaches its peak, as lending standards loosen, and information asymmetries in securitization markets increase. Investors value frequent issuers more favourably on riskier, difficult to evaluate MBS. We find that after the great financial crisis (GFC), investors began to attribute more value to frequent issuers, regardless of MBS credit quality. We also find that in the pre-crisis period, investors required higher yields to compensate for perceived rating shopping, which is not observed after the GFC. Finally, we show that investors expect higher yields on deals closed by subsidiaries of foreign banks.

Keywords: Securitization; MBS pricing; Bank-borrower distance; Rating shopping (search for similar items in EconPapers)
JEL-codes: G21 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 (2)

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DOI: 10.1007/s11156-021-00977-2

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