Loan-level Disclosure and the Convenience Yield of Asset-Backed Securities

60 Pages Posted: 27 Jan 2019 Last revised: 1 Mar 2022

See all articles by Brent Schmidt

Brent Schmidt

Pennsylvania State University - Department of Accounting

Haiwen (Helen) Zhang

University of Minnesota

Date Written: February 25, 2022

Abstract

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

Schmidt, Brent and Zhang, Haiwen (Helen), Loan-level Disclosure and the Convenience Yield of Asset-Backed Securities (February 25, 2022). Available at SSRN: https://ssrn.com/abstract=3316344 or http://dx.doi.org/10.2139/ssrn.3316344

Brent Schmidt

Pennsylvania State University - Department of Accounting ( email )

University Park, PA 16802-3306
United States

Haiwen (Helen) Zhang (Contact Author)

University of Minnesota ( email )

3-122 Carlson School of Management
321-19th Avenue South
Minneapolis, MN 55455
United States

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