Systematic and Liquidity Risk in Subprime-Mortgage Backed SecuritiesM

Thomas Flavin, Gerald Dwyer and Mardi Dungey

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: The misevaluation of risk in securitized financial products is central to understand- ing the Financial Crisis of 2007-2008. This paper characterizes the evolution of factors affecting collateralized debt obligations (CDOs) based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage effect, we show the increasing importance of a common factor on more senior tranches during the crisis. We examine this common factor and its relationship with spreads. We estimate the effects on the common factor of the financial crisis.

Keywords: asset backed securities; subprime mortgages; financial crisis; factor mod-els; Kalman filter (search for similar items in EconPapers)
JEL-codes: C32 G01 G12 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2011
New Economics Papers: this item is included in nep-ban and nep-ure
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http://repec.maynoothuniversity.ie/mayecw-files/N219-11.pdf (application/pdf)

Related works:
Journal Article: Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities (2013)
Working Paper: Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities (2011)
Working Paper: Systematic and liquidity risk in subprime-mortgage backed securities (2011)
Working Paper: Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n219-11

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