Loan-level Disclosure and the Convenience Yield of Asset-Backed Securities
60 Pages Posted: 27 Jan 2019 Last revised: 1 Mar 2022
Date Written: February 25, 2022
We examine the impact of transparency on the convenience yield of asset-backed securities. Using loan-level disclosure of asset-backed securities (ABS) mandated by the SEC to capture enhanced transparency, we show that the convenience yield of AAA-rated ABS providing such disclosures decreases by between 48% and 73%. This result is stronger when disclosure quality is high and for information-sensitive AAA tranches. Further analyses suggest that the change in convenience yield is due to increased price volatility, not secondary market illiquidity. Finally, we document that AAA-rated ABS with loan-level disclosures are less likely to serve as collateral in the tri-party repo market. Collectively, our evidence suggests that increased transparency reduces pledgeability, and thus the convenience yield, of long-term safe assets.
Keywords: Asset-backed securities, Loan level disclosure, Convenience yield
JEL Classification: G14, G18
Suggested Citation: Suggested Citation