Post-Crisis Signals in Securitization: Evidence from Auto Abs

51 Pages Posted: 12 Jun 2020

See all articles by Erin Syron Ferris

Erin Syron Ferris

Board of Governors of the Federal Reserve System

Chaehee Shin

Board of Governors of the Federal Reserve System

Date Written: May, 2020

Abstract

We find significant evidence of asymmetric information and signaling in post-crisis offerings in the auto asset-backed securities (ABS) market. Using granular regulatory reporting data, we are able to directly measure private information and quantify its effect on signaling and pricing. We show that lenders "self-finance'' unobservably higher-quality loans by holding these loans for longer periods to signal private information. This signal is priced in initial offerings of auto ABS and accurately predicts ex-post loan performance. We also demonstrate that our results are robust to exogenous shifts in the demand and supply of auto loans. Despite an environment of post-crisis enhanced transparency and securitization standards, signaling may be motivated by inattentive investors and regulations enforcing "no adverse selection'' in constructing ABS.

JEL Classification: D82, G14, G23

Suggested Citation

Syron Ferris, Erin and Shin, Chaehee, Post-Crisis Signals in Securitization: Evidence from Auto Abs (May, 2020). FEDS Working Paper No. 2020-042, Available at SSRN: https://ssrn.com/abstract=3624935 or http://dx.doi.org/10.17016/FEDS.2020.042

Erin Syron Ferris (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Chaehee Shin

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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