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Title: CDO market implosion and the pricing of subprime mortgage-backed securities
Authors: Deng, Y. 
Gabriel, S.A.
Sanders, A.B.
Keywords: Collateralized debt obligations
Subprime crisis
Yield spreads on mortgage-backed securities
Issue Date: 2011
Citation: Deng, Y., Gabriel, S.A., Sanders, A.B. (2011). CDO market implosion and the pricing of subprime mortgage-backed securities. Journal of Housing Economics 20 (2) : 68-80. ScholarBank@NUS Repository.
Abstract: We evaluate the effects of CDO issuance on the pricing of subprime residential mortgage-backed securities. Upon controlling for mortgage option values and other well-established determinants of credit spreads, GMM results indicate that the emergence and rapid capitalization of the subprime-backed CDO market was associated with a significant tightening of subprime MBS-Treasury yield spreads. Results of VAR and other robustness tests serve to corroborate the findings. Dynamic simulation based on the impulse response function estimates indicates substantial subprime MBS spread widening in the wake of the recent implosion in the CDO market. Research findings suggest the importance of supply/demand shocks associated with innovations in derivative securities markets to the pricing of securitized subprime debt. © 2010 Elsevier Inc.
Source Title: Journal of Housing Economics
ISSN: 10511377
DOI: 10.1016/j.jhe.2010.10.001
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