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Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities

Dungey, Mardi; Dwyer, Gerald P; Flavin, Thomas

Description

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...[Show more]

CollectionsANU Research Publications
Date published: 2013
Type: Journal article
URI: http://hdl.handle.net/1885/70495
Source: Open Economies Review
DOI: 10.1007/s11079-012-9254-4

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