Liquidity Provision, Credit Risk and the Bond Spread: New Evidence from the Subprime Mortgage Market

Add to your list(s) Download to your calendar using vCal

• Professor Timothy Riddiough, University of Wisconsin-Madison
• Wednesday 10 February 2016, 16:00-17:00
• Mill Lane Lecture Room 1.

If you have a question about this talk, please contact Clare Eaves.

We study the determinants of the subprime mortgage loan spread, with a particular focus on funding liquidity and default-liquidity interaction effects. We find that sector-level as well as macro funding liquidity provision affected subprime loan rates, explaining a significant portion of the variation in spreads. Liquidity conditions just prior to loan default mattered, indicating destabilizing liquidity-driven default effects. A reduction in macro funding liquidity provision at the time of loan origination predicts worsening credit performance, implying a stabilizing default-driven liquidity component in the loan spread. Positive default-liquidity feedback (spiraling) effects are also documented.

Biography

Timothy (Tim) Riddiough holds the E.J. Plesko Chair and is a professor in the Department of Real Estate and Urban Land Economics at the Wisconsin School of Business. He also serves as Academic Director of the Graaskamp Center for Real Estate and Director of the Applied Real Estate Securities Analysis Track (AREIT). He previously served as the academic director of the Graaskamp Center for Real Estate from 2004-2009.

Riddiough was the 2012 president of the American Real Estate and Urban Economics Association (AREUEA). He has been active in AREUEA for many years, serving on the board of directors several times. He is on the editorial board of Real Estate Economics and for several years served as editor of Real Estate Finance. He currently serves on the editorial boards of five other real estate-related journals.

His honors and awards include winning the best dissertation and best paper awards from AREUEA , being named a founding fellow at the Real Estate Research Institute, and a fellow at the Homer Hoyt Institute for Advanced Studies.

Riddiough is best known for his work on credit risk in mortgage lending, mortgage securitization, real options, REIT investment and corporate finance, and land use regulation. His current research interests are focused on the financial crisis of 2007-08, economic development of debt markets, and optimal contract design.

Riddoiugh is an active participant in the commercial real estate industry, speaking often on the financial crisis, and was recently named to NAREIT ’s investment advisory council. He is also active with the Pension Real Estate Association and the Commercial Mortgage Securities Association. He advises several real estate organizations on investment and risk management issues, and has served as an expert economic consultant on numerous legal matters involving real estate finance and investment issues.

This talk is part of the Land Economy Departmental Seminar Series series.

This talk is included in these lists:

• Land Economy Departmental Seminar Series
• Mill Lane Lecture Room 1

Note that ex-directory lists are not shown.