The Rise and Fall of Demand for Securitizations

Sergey Chernenko, Samuel Hanson and Adi Sunderam

No 20777, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Collateralized debt obligations (CDOs) and private-label mortgage-backed securities (MBS) backed by nonprime loans played a central role in the recent financial crisis. Little is known, however, about the underlying forces that drove investor demand for these securitizations. Using micro-data on insurers’ and mutual funds’ bond holdings, we find considerable heterogeneity in investor demand for securitizations in the pre-crisis period. We argue that both investor beliefs and incentives help to explain this variation in demand. By contrast, our data paints a more uniform picture of investor behavior in the crisis. Consistent with theories of optimal liquidation, investors largely traded in more liquid securities such as government-guaranteed MBS to meet their liquidity needs during the crisis.

JEL-codes: G01 G12 G22 G23 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-ban
Note: AP CF
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Citations: View citations in EconPapers (15)

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Working Paper: The Rise and Fall of Demand for Securitizations (2014)
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