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ABS, MBS and CDO compared: an empirical analysis
Vink, Dennis Thibeault, André
Vink, Dennis
Thibeault, André
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Publication Type
Working paper
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Supervisor
Publication Year
2008
Journal
Book
Publication Volume
Publication Issue
4
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Publication End page
Publication Number of pages
56
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Abstract
The capital market in which the asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs. We were able to examine a total number of 3,951 loans (worth €730.25 billion) of which 1,129 (worth €208.94 billion) have been classified as ABS. MBS issues represent 2,224 issues (worth €459.32 billion) and 598 are CDO issues (worth €61.99 billion). We have investigated how common pricing factors compare for the main classes of securities. Due to the differences in the assets related to these securities, the relevant pricing factors for these securities should differ, too. Taking these three classes as a whole, we have documented that the assets attached as collateral for the securities differ between security classes, but that there are also important univariate differences to consider. We found that most of the common pricing characteristics between ABS, MBS and CDO differ significantly. Furthermore, applying the same pricing estimation model to each security class revealed that most of the common pricing characteristics associated with these classes have a different impact on the primary market spread exhibited by the value of the coefficients. The regression analyses we performed demonstrated econometrically that ABS, MBS, and CDOs are in fact different financial instruments.
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Keywords
Financial Accounting, Accounting & Finance, Asset-Backed Securitisation, Bank Lending, Default Risk, Risk Management, Spreads, Leveraged Financing