 Senior-subordinated structure: buffer or signal in securitisation?Stefano Filomeni and Konstantinos Baltas The European Journal of Finance, 2023, vol. 29, issue 3, 329-362 Abstract: By exploiting a unique and proprietary dataset comprising granular deal- and tranche-level data on a global portfolio of securitisation deals, we empirically test the buffer vs the signalling hypothesis of credit enhancements in securitisation. We do so by focusing on one internal credit enhancement associated with the design of financial securities in securitisation, i.e. subordination. This study provides novel evidence on the role played by subordination in securitisation, suggesting that a real dichotomy between the buffer and signalling effects does not hold. Our findings indeed highlight that subordination serves both as a buffer against observable risk and as a signal of unobservable credit quality to third-party investors in the market; moreover, our results are robust to a wide battery of robustness tests. Our findings, of international relevance, contribute to the literature on information asymmetries between originators and investors and offer new policy insights in light of the recent agreement reached by European lawmakers with national governments to revive the European securitisation market. Date: 2023 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:29:y:2023:i:3:p:329-362 Ordering information: This journal article can be ordered from DOI: 10.1080/1351847X.2022.2052140 Access Statistics for this article The European Journal of Finance is currently edited by Chris Adcock More articles in The European Journal of Finance from Taylor & Francis Journals |
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