Simple is Simply not Enough – Features versus Labels of Complex Financial Securities

50 Pages Posted: 16 Nov 2020 Last revised: 17 Nov 2020

See all articles by Martin Thomas Hibbeln

Martin Thomas Hibbeln

University of Duisburg-Essen - Mercator School of Management

Werner Osterkamp

University of Duisburg-Essen - Mercator School of Management

Fabian Rendchen

University of Duisburg-Essen - Mercator School of Management

Date Written: November 13, 2020

Abstract

Based on a unique data set of European residential mortgage-backed security (RMBS) deals with 31 million quarterly loan observations, we examine how design features and labels of complex financial securities affect tranches’ spreads and loan performance. Exploiting the features required by the European Union’s Securitization Regulation and the STS (Simple, Transparent, Standardized) label, we find that the features of the security design and not the label are crucial for the loan performance. However, investors hardly consider the features but simply rely on the existence of the label.

Keywords: asset-backed securities, EU securitization regulation, simple transparent standardized (STS), loan performance, complex securities

JEL Classification: D82, G01, G18, G21

Suggested Citation

Hibbeln, Martin Thomas and Osterkamp, Werner and Rendchen, Fabian, Simple is Simply not Enough – Features versus Labels of Complex Financial Securities (November 13, 2020). Available at SSRN: https://ssrn.com/abstract=3598123 or http://dx.doi.org/10.2139/ssrn.3598123

Martin Thomas Hibbeln

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379-2830 (Phone)

Werner Osterkamp (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

Fabian Rendchen

University of Duisburg-Essen - Mercator School of Management ( email )

Germany

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