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    Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities

    Dungey, Mardi and Dwyer, Gerald P. and Flavin, Thomas (2013) Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities. Open Economies Review, 24. pp. 5-32. ISSN 0923-7992

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    The misevaluation of risk in securitized financial products is central to understanding 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 of the financial crisis on the common factor.

    Item Type: Article
    Keywords: Asset backed securities; Subprime mortgages; Financial crisis; Factor; models; Kalman filter;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 7990
    Identification Number:
    Depositing User: Thomas Flavin
    Date Deposited: 07 Mar 2017 12:29
    Journal or Publication Title: Open Economies Review
    Publisher: Springer Verlag
    Refereed: Yes
    Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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