Informational Efficiency in Securitization After Dodd-Frank

57 Pages Posted: 5 Nov 2018 Last revised: 23 May 2019

See all articles by Sean Flynn

Sean Flynn

Cornell SC Johnson College of Business

Andra C. Ghent

University of Utah - David Eccles School of Business

Alexei Tchistyi

Cornell SC Johnson College of Business

Date Written: May 21, 2019

Abstract

We analyze how Dodd-Frank mandated risk retention affects the information investors extract from issuers' retention choices in the CMBS market. We show that the required retention level is both binding and stringent. Although this implies issuers cannot signal using the level of retention, we provide a model showing that signaling can occur by varying retention structure. The model is consistent with spreads being empirically lower in deals with a purely first-loss retention structure. A stated concern of rulemakers was asymmetric information. However, we show that, post-crisis, the level of asymmetric information in this market is quite low.

Keywords: Dodd-Frank Act, Asymmetric Information, Signaling Equilibrium, ABS.

JEL Classification: G14, G18, G21, G28

Suggested Citation

Flynn, Sean and Ghent, Andra C. and Tchistyi, Alexei, Informational Efficiency in Securitization After Dodd-Frank (May 21, 2019). Sixth Annual Conference on Financial Market Regulation (2018), Available at SSRN: https://ssrn.com/abstract=3278424 or http://dx.doi.org/10.2139/ssrn.3278424

Sean Flynn (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Andra C. Ghent

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Alexei Tchistyi

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
122
Abstract Views
1,249
Rank
343,550
PlumX Metrics