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Article Dans Une Revue Journal of Financial Economics Année : 2018

Securitization bubbles: Structured finance with disagreement about default risk

Résumé

An additional reason for the structured finance boom of the 2000s may have been disagreement about default risk of collateral assets. When risk-neutral investors disagree about average default probabilities, structuring collateral cash flow raises prices by concentrating optimists’ demand on risky tranches. With disagreement about default correlation, low-correlation investors believe in diversification and pay high prices for senior tranches they deem riskless. High-correlation investors value junior tranches they expect to pay whenever aggregate conditions are good. Risk aversion and short selling through credit default swaps reduce the prices of both pass-through and structured securitizations but may increase the return to tranching.
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Dates et versions

hal-04489676 , version 1 (05-03-2024)

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Tobias Broer. Securitization bubbles: Structured finance with disagreement about default risk. Journal of Financial Economics, 2018, 127 (3), pp.505-518. ⟨10.1016/j.jfineco.2017.12.001⟩. ⟨hal-04489676⟩
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