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CATEGORIES:Finance and Accounting Subject Group
SUMMARY:Market Reactions to Securitization Retained Intere
 st Impairments during the Financial Crisis of 2007
 -2008: Are Implicit Guarantees Worth the Paper The
 y're Not Written On? - Wayne Landsman
DTSTART;TZID=Europe/London:20120302T120000
DTEND;TZID=Europe/London:20120302T133000
UID:TALK36751AThttp://talks.cam.ac.uk
URL:http://talks.cam.ac.uk/talk/index/36751
DESCRIPTION:The collapse of the securitization market during t
 he 2007-2008\nFinancial Crisis resulted from inves
 tors' concern with the value of\nsecuritized asset
 s and securities issued by special purpose entitie
 s\n(SPEs). Research has shown that prior to the Cr
 isis\, investors valued\nequity of sponsor-origina
 tor banks (S-Os) as if there were an implicit\ngua
 rantee extended to SPE creditors that would be ful
 ly honoured. We\npredict that the Crisis caused in
 vestors to value S-O equity as if such\nguarantees
  would not be honoured. We test this prediction in
  two ways: by\nestimating cross-sectional equity v
 aluation models for banks before and\nduring the F
 inancial Crisis\, and by testing for changes in va
 rious market\nmetrics in response to retained inte
 rest write down events during the\nFinancial Crisi
 s. The valuation tests reveal that whereas prior t
 o the\nCrisis SPE debt and equity was valued simil
 arly to S-O debt and equity\,\nthis relation cease
 d to hold after the Crisis unfolded. The event stu
 dy\nresults reveal an increase in trading volume\,
  equity volatility\, and spread\nwhen retained int
 erest write downs are announced\, which is consist
 ent with\nthe market viewing such events as provid
 ing significant\, but ambiguous\ninformation regar
 ding whether S-Os would honour their implicit guar
 antees.\nAdditional analyses reveal that investor 
 reaction is concentrated among\nthose S-Os where t
 here is ambiguity as to whether they will honour t
 heir\nimplicit guarantees.
LOCATION:Lecture Theatre 3\, Judge Business School
CONTACT:Miss Camilla Burgess
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