Asymmetric information in securitization: An empirical assessment |
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Institution: | 1. Duke’s Fuqua School of Business, Duke University, 100 Fuqua Drive, Durham, NC 27708, USA;2. Department of Research, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309, USA |
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Abstract: | Asymmetric information in securitization deals is analyzed based on a unique dataset comprising a million mortgages, both securitized and not, and using a methodology, previously applied to insurance data, that looks at the correlation between risk transfer and default probability. The main finding is that, for given observable characteristics, securitized mortgages have a lower default probability than non-securitized ones. We show that this finding is consistent with banks caring about their reputation for not selling lemons. |
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Keywords: | Securitization Asymmetric information Reputation |
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