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Asset Securitizations and Credit Default Swaps

Zhang, J.

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Authors

J. Zhang



Abstract

This study examines the effects of off-balance sheet versus on-balance sheet securitizations on the originator's credit risk in the default swap (CDS) market across the recent business cycle from 2002 to 2009. I find that on-balance sheet securitizations demonstrate greater effects on the originator's CDS premium than off-balance sheet securitizations in the business cycle. While off-balance sheet securitizations’ effects on the originator's CDS premium become significantly stronger after 2007 when the economy declines, on-balance sheet securitizations’ effects on the originator's CDS premium do not experience a significant change with the onset of the recession. The results suggest that the CDS market views originators as having greater probabilities not to honour their implicit guarantees for off-balance sheet securitizations during the economic downturn. The results also indicate that on balance sheet and off-balance sheet securitizations have distinctly different risk properties. It would be beneficial to investors if regulations take into considerations the changing credit risks of off-balance sheet securitizations and the different structures of asset securitizations.

Citation

Zhang, J. (2014). Asset Securitizations and Credit Default Swaps. Financial Markets, Institutions and Instruments, 23(4), 211-243. https://doi.org/10.1111/fmii.12019

Journal Article Type Article
Publication Date Nov 1, 2014
Deposit Date Oct 26, 2015
Publicly Available Date Mar 29, 2024
Journal Financial Markets, Institutions and Instruments
Print ISSN 0963-8008
Electronic ISSN 1468-0416
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 23
Issue 4
Pages 211-243
DOI https://doi.org/10.1111/fmii.12019
Public URL https://durham-repository.worktribe.com/output/1428070

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Copyright Statement
This is the accepted version of the following article: Zhang, J. Z. (2014), Asset Securitizations and Credit Default Swaps. Financial Markets, Institutions and Instruments, 23(4): 211-243, which has been published in final form at http://dx.doi.org/10.1111/fmii.12019. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.




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