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Subprime mortgage defaults and credit default swaps

To purchase or authenticate to the full-text of this article, please visit this link: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12221/abstract Byline: ERIC ARENTSEN, DAVID C. MAUER, BRIAN ROSENLUND, HAROLD H. ZHANG, FENG ZHAO ABSTRACT We offer the first empirical evidence on the adverse effect... Full description

Journal Title: The journal of finance : the journal of the American Finance Association 2015, Vol.70(2), pp.689-732
Main Author: Arentsen, Eric
Other Authors: Mauer, David C. , Rosenlund, Brian , Zhang, Harold H. , Zhao, Feng,
Format: Electronic Article Electronic Article
Language: English
Subjects:
ID: ISSN: 0022-1082
Link: http://gso.gbv.de/DB=2.1/PPNSET?PPN=824633903
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recordid: gbv824633903
title: Subprime mortgage defaults and credit default swaps
format: Article
creator:
  • Arentsen, Eric
  • Mauer, David C.
  • Rosenlund, Brian
  • Zhang, Harold H.
  • Zhao, Feng
subjects:
  • Kreditderivat
  • Risikoprämie
  • Subprime-Krise
  • Welt
  • Ausfallrisiko
  • 2003-2007
ispartof: The journal of finance : the journal of the American Finance Association, 2015, Vol.70(2), pp.689-732
description: To purchase or authenticate to the full-text of this article, please visit this link: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12221/abstract Byline: ERIC ARENTSEN, DAVID C. MAUER, BRIAN ROSENLUND, HAROLD H. ZHANG, FENG ZHAO ABSTRACT We offer the first empirical evidence on the adverse effect of credit default swap (CDS) coverage on subprime mortgage defaults. Using a large database of privately securitized mortgages, we find that higher defaults concentrate in mortgage pools with concurrent CDS coverage, and within these pools the loans originated after or shortly before the start of CDS coverage have an even higher delinquency rate. The results are robust across zip code and origination quarter cohorts. Overall, we show that CDS coverage helped drive higher mortgage defaults during the financial crisis. Article Note: Arentsen and Rosenlund are at TCW Group Inc.; Mauer is at the Tippie School of Business, University of Iowa; Zhang and Zhao are at the Jindal School of Management, University of Texas at Dallas. For valued input we thank an anonymous referee, Cliff Ball, Nick Bollen, Cam Harvey (Editor), Victoria Ivashina (AFA discussant), Robert Jarrow, Hayne Leland, Stan Liebowitz, David Parsley, Sorin Sorescu, Stuart Turnbull, Xiao Wang, Yilei Zhang, and seminar participants at the 2013 American Finance Association Meeting, the 23rd Annual Derivatives and Risk Management Conference, University of Hong Kong, University of Iowa, University of North Dakota, Shanghai Advanced Institute of Finance (SAIF), Singapore Management University, Texas A&M University, Tsinghua University, and Vanderbilt University. We are also grateful to Jason Friend at LPS Applied Analytics for data assistance. TCW has cooperated in this paper as part of its desire to encourage and support academic research in finance. The views expressed in the paper do not represent opinions of TCW. All remaining errors are our own. Supporting information: Additional Supporting Information may be found in the online version of this article Additional Supporting Information may be found in the online version of this article at the publishers website: CAPTION(S): Appendix S1: Internet Appendix
language: eng
source:
identifier: ISSN: 0022-1082
fulltext: fulltext
issn:
  • 00221082
  • 0022-1082
url: Link


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descriptionTo purchase or authenticate to the full-text of this article, please visit this link: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12221/abstract Byline: ERIC ARENTSEN, DAVID C. MAUER, BRIAN ROSENLUND, HAROLD H. ZHANG, FENG ZHAO ABSTRACT We offer the first empirical evidence on the adverse effect of credit default swap (CDS) coverage on subprime mortgage defaults. Using a large database of privately securitized mortgages, we find that higher defaults concentrate in mortgage pools with concurrent CDS coverage, and within these pools the loans originated after or shortly before the start of CDS coverage have an even higher delinquency rate. The results are robust across zip code and origination quarter cohorts. Overall, we show that CDS coverage helped drive higher mortgage defaults during the financial crisis. Article Note: Arentsen and Rosenlund are at TCW Group Inc.; Mauer is at the Tippie School of Business, University of Iowa; Zhang and Zhao are at the Jindal School of Management, University of Texas at Dallas. For valued input we thank an anonymous referee, Cliff Ball, Nick Bollen, Cam Harvey (Editor), Victoria Ivashina (AFA discussant), Robert Jarrow, Hayne Leland, Stan Liebowitz, David Parsley, Sorin Sorescu, Stuart Turnbull, Xiao Wang, Yilei Zhang, and seminar participants at the 2013 American Finance Association Meeting, the 23rd Annual Derivatives and Risk Management Conference, University of Hong Kong, University of Iowa, University of North Dakota, Shanghai Advanced Institute of Finance (SAIF), Singapore Management University, Texas A&M University, Tsinghua University, and Vanderbilt University. We are also grateful to Jason Friend at LPS Applied Analytics for data assistance. TCW has cooperated in this paper as part of its desire to encourage and support academic research in finance. The views expressed in the paper do not represent opinions of TCW. All remaining errors are our own. Supporting information: Additional Supporting Information may be found in the online version of this article Additional Supporting Information may be found in the online version of this article at the publishers website: CAPTION(S): Appendix S1: Internet Appendix
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