Abstract

http://ssrn.com/abstract=2325835
 
 

References (54)



 


 



Complexity in Structured Finance


Andra C. Ghent


University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Walter N. Torous


University of California, Los Angeles (UCLA) - Finance Area

Rossen I. Valkanov


University of California, San Diego (UCSD) - Rady School of Management

January 26, 2016


Abstract:     
Sellers of products can increase buyers' search costs by obfuscating either the price or the quality of the product. We study complexity in the market for securitized products, a market in which it is easy for buyers to observe prices but difficult to observe product quality. We find that securities in more complex residential MBS deals default more. The higher likelihood of default is economically meaningful: a one standard deviation increase in complexity represents a 17% increase in default on AAA securities. However, yields of more complex securities are not higher indicating that investors do not perceive them as riskier.

Number of Pages in PDF File: 46

Keywords: Complexity, Security Design, MBS Performance

JEL Classification: G12, G14, G21, G24


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Date posted: September 15, 2013 ; Last revised: January 28, 2016

Suggested Citation

Ghent, Andra C. and Torous, Walter N. and Valkanov, Rossen I., Complexity in Structured Finance (January 26, 2016). Available at SSRN: http://ssrn.com/abstract=2325835 or http://dx.doi.org/10.2139/ssrn.2325835

Contact Information

Andra C. Ghent (Contact Author)
University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )
School of Business
975 University Avenue
Madison, WI 53706
United States
Walter N. Torous
University of California, Los Angeles (UCLA) - Finance Area ( email )
Los Angeles, CA 90095-1481
United States
310-825-4059 (Phone)
310-206-5455 (Fax)
Rossen Valkanov
University of California, San Diego (UCSD) - Rady School of Management ( email )
9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-0898 (Phone)
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