Abstract

http://ssrn.com/abstract=2325835
 
 

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Complexity in Structured Finance: Financial Wizardry or Smoke and Mirrors?


Andra C. Ghent


Arizona State University (ASU) - Finance Department

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 8, 2014


Abstract:     
We use data from prospectus supplements to create measures of the complexity of securitized products. We use these measures to investigate whether and to what extent complexity plays a role in the performance and pricing of mortgage-backed securities. We find that securities in more complex deals default more. However, yields of more complex securities are not higher at issuance indicating that investors do not perceive such assets as more likely to default. Furthermore, rating agencies are more lenient in rating complex deals. Our results indicate that issuers use complexity as a sales device rather than to create higher quality assets.

Number of Pages in PDF File: 45

JEL Classification: G12, G14, G21, G24

working papers series


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Date posted: September 15, 2013 ; Last revised: January 9, 2014

Suggested Citation

Ghent, Andra C. and Torous, Walter N. and Valkanov, Rossen I., Complexity in Structured Finance: Financial Wizardry or Smoke and Mirrors? (January 8, 2014). Available at SSRN: http://ssrn.com/abstract=2325835 or http://dx.doi.org/10.2139/ssrn.2325835

Contact Information

Andra C. Ghent (Contact Author)
Arizona State University (ASU) - Finance Department ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
HOME PAGE: http://www.public.asu.edu/~aghent/
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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