Looking Beyond Credit Ratings: Factors Investors Consider in Pricing European Asset‐Backed Securities

28 Pages Posted: 23 Aug 2012

See all articles by Frank J. Fabozzi

Frank J. Fabozzi

EDHEC Business School

Dennis Vink

Nyenrode Business University

Date Written: September 2012

Abstract

In this paper, we empirically investigate what credit factors investors rely upon when pricing the spread at issue for European asset‐backed securities. More specifically, we investigate how credit factors affect new issuance spreads after taking into account credit rating. We do so by investigating primary market spreads for tranches of non‐mortgage‐related asset‐backed securities issued from 1999 to the year prior to the subprime mortgage crisis, 2007. We find that although credit ratings play a major role in determining spreads, investors appear to not rely exclusively on these ratings. Our findings strongly suggest that investors do not ignore other credit factors beyond the assigned credit rating.

Keywords: asset‐backed securities (ABS), credit ratings, collateral, default risk, securitisation, over‐reliance

JEL Classification: G21, G24, G32

Suggested Citation

Fabozzi, Frank J. and Vink, Dennis, Looking Beyond Credit Ratings: Factors Investors Consider in Pricing European Asset‐Backed Securities (September 2012). European Financial Management, Vol. 18, Issue 4, pp. 515-542, 2012, Available at SSRN: https://ssrn.com/abstract=2134713 or http://dx.doi.org/10.1111/j.1468-036X.2010.00577.x

Frank J. Fabozzi (Contact Author)

EDHEC Business School ( email )

France
215 598-8924 (Phone)

Dennis Vink

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

HOME PAGE: http://www.dennisvink.nl

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
595
PlumX Metrics