Asymmetric Information and the Death of ABS CDOs

Daniel Beltran, Lawrence R. Cordell and Charles Thomas

No 1075, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a ?workhorse\" model for pricing securities under asymmetric information and a novel dataset, we show how adverse selection could explain why the bulk of these securities either traded at significant discounts or did not trade at all.

Keywords: CDO; Securitization; Asymmetric; Lemons (search for similar items in EconPapers)
JEL-codes: C63 D43 D82 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013
New Economics Papers: this item is included in nep-cta and nep-fmk
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Asymmetric information and the death of ABS CDOs (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1075

DOI: 10.17016/IFDP.2016.1075r

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