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Systematic and liquidity risk in subprime-mortgage backed securities


Dungey, M and Dwyer, GP and Flavin, T, Systematic and liquidity risk in subprime-mortgage backed securities, Open Economies Review, 24, (1) pp. 5-32. ISSN 0923-7992 (2013) [Refereed Article]

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Copyright 2012 Springer Science+Business Media

DOI: doi:10.1007/s11079-012-9254-4


The misevaluation of risk in securitized financial products is central to understanding the Financial Crisis of 20072008. This paper characterizes the evolution of factors affecting collateralized debt obligations (CDOs) based on subprime mortgages. A key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage effect, we show the increasing importance of a common factor on more senior tranches during the crisis. We examine this common factor and its relationship with spreads. We estimate the effects of the financial crisis on the common factor.

Item Details

Item Type:Refereed Article
Keywords:asset backed securities, subprime mortgages, financial crisis, factor models, Kalman filter
Research Division:Economics
Research Group:Applied economics
Research Field:Macroeconomics (incl. monetary and fiscal theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Monetary policy
UTAS Author:Dungey, M (Professor Mardi Dungey)
ID Code:83787
Year Published:2013 (online first 2012)
Web of Science® Times Cited:5
Deposited By:Economics and Finance
Deposited On:2013-03-22
Last Modified:2015-07-23

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