Identifying Risk Factors Underlying the U.S. Subprime Mortgage-Backed Securities Market

Lisa Sheenan

A chapter in Eurasian Business Perspectives, 2018, pp 63-87 from Springer

Abstract: Abstract The devastating credit crunch and subsequent liquidity freeze of 2007–2008 plunged the global financial market into one of its worst crises ever experienced. It is now clear that subprime mortgage-backed securities lay at the heart of this catastrophe and that the risk underlying these securities was vastly underestimated. This paper examines this risk by performing principal component analysis, OLS regression analysis and rolling regression analysis on ABX.HE Indexes data. The results of the principal component analysis results show that the main principal component falls in importance with each new vintage issuance, suggesting that there were other unobserved factors contributing to the variation in the data. The OLS regression analysis also suggests that other factors were coming into play as the crisis evolved and the rolling regression analysis allows us to link these changes to important events in the crisis, namely the onset of the liquidity crisis in September 2008. Overall the results indicate that these are assets are heterogeneous in nature, and not simply a continuation of the previous issuance.

Keywords: Financial crisis; Credit crunch; Asset-backed securities; Subprime CDOs; Principal component analysis (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-319-67913-6_5

Ordering information: This item can be ordered from
http://www.springer.com/9783319679136

DOI: 10.1007/978-3-319-67913-6_5

Access Statistics for this chapter

More chapters in Eurasian Studies in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().