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SUMMARY:Market Reactions to Securitization Retained Interest Impairments d
 uring the Financial Crisis of 2007-2008: Are Implicit Guarantees Worth the
  Paper They're Not Written On? - Wayne Landsman
DTSTART:20120302T120000Z
DTEND:20120302T133000Z
UID:TALK36751@talks.cam.ac.uk
CONTACT:Miss Camilla Burgess
DESCRIPTION:The collapse of the securitization market during the 2007-2008
 \nFinancial Crisis resulted from investors' concern with the value of\nsec
 uritized assets and securities issued by special purpose entities\n(SPEs).
  Research has shown that prior to the Crisis\, investors valued\nequity of
  sponsor-originator banks (S-Os) as if there were an implicit\nguarantee e
 xtended to SPE creditors that would be fully honoured. We\npredict that th
 e Crisis caused investors to value S-O equity as if such\nguarantees would
  not be honoured. We test this prediction in two ways: by\nestimating cros
 s-sectional equity valuation models for banks before and\nduring the Finan
 cial Crisis\, and by testing for changes in various market\nmetrics in res
 ponse to retained interest write down events during the\nFinancial Crisis.
  The valuation tests reveal that whereas prior to the\nCrisis SPE debt and
  equity was valued similarly to S-O debt and equity\,\nthis relation cease
 d to hold after the Crisis unfolded. The event study\nresults reveal an in
 crease in trading volume\, equity volatility\, and spread\nwhen retained i
 nterest write downs are announced\, which is consistent with\nthe market v
 iewing such events as providing significant\, but ambiguous\ninformation r
 egarding whether S-Os would honour their implicit guarantees.\nAdditional 
 analyses reveal that investor reaction is concentrated among\nthose S-Os w
 here there is ambiguity as to whether they will honour their\nimplicit gua
 rantees.
LOCATION:Lecture Theatre 3\, Judge Business School
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