Credit Risk, Informed Markets, and Securitization

23 Pages Posted: 12 Jan 2018

See all articles by Susan M. Wachter

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: January 11, 2018

Abstract

Mortgage backed securities (MBS) funded the US housing bubble, while the bust resulted in systemic risk and the Global Financial Crisis. The pricing of MBS and the ABX securitization index failed to reveal growing credit risk. This paper draws lessons from this failure for the use of Credit Risk Transfers (CRT) to price credit risk. The central question is would the CRT market, as constituted today, have behaved differently than financial asset markets in the bubble years? If no, then this is a problem. If yes, then why?

Keywords: MBS, CRT, Credit Risk Transfer, Securitization, Financial Crisis, Recession

Suggested Citation

Wachter, Susan M., Credit Risk, Informed Markets, and Securitization (January 11, 2018). Available at SSRN: https://ssrn.com/abstract=3100404 or http://dx.doi.org/10.2139/ssrn.3100404

Susan M. Wachter (Contact Author)

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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