Increases in securitisation may lead to under-pricing of risk, study argues
Securitisation may drive down cost of risk for banks, but could leave risk unchanged
Higher volumes of asset securitisation have the potential to unduly reduce the market price of risk, a working paper published recently by the Bank of Spain argues.
In ‘Securitization and asset prices', Yunus Aksoy and Henrique S Basso construct monthly time-series for trading in asset-backed and mortgage-backed securities (ABS and MBS) in the US since 1993. Increases in the growth rate of the issue of ABS led to large declines in bond and equity premia before, and to some extent after, the
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