Do investors value frequent issuers in securitization?

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Deku, S. ORCID: 0000-0003-1579-8708, Kara, A. and Karimov, N., 2021. Do investors value frequent issuers in securitization? Review of Quantitative Finance and Accounting, 57, pp. 1247-1282. ISSN 0924-865X

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Official URL: https://doi.org/10.1007/s11156-021-00977-2

Abstract

We assess the value of frequent issuers to investors in securitization markets by examining the initial yield spread of 6,132 European mortgage-backed securities (MBS), covering a 20-year period between 1999 and 2018. We find that frequent issuers have certification value, and it increases as the credit cycle approaches its peak, as lending standards loosen, and information asymmetries in securitization markets increase. Frequent issuers are valued more favourably on riskier, difficult to evaluate MBS. We find that after the Great Financial Crisis (GFC), investors began to attribute more value to frequent issuers, regardless of MBS credit quality. We also find that in the pre-crisis period, investors required higher yields to compensate for perceived rating shopping, which is not observed after the GFC. Finally, we show that investors expect higher yields on deals closed by subsidiaries of foreign banks.

Item Type:

Journal article

Publication Title:

Review of Quantitative Finance and Accounting

Creators:

Deku, S., Kara, A. and Karimov, N.

Publisher:

Springer Verlag

Date:

November 2021

Volume:

ISSN: