Systematic credit cycle risk of financial collaterals: modeling and evidence

AbstractWe assess the value of frequent issuers to investors in securitization markets by examining the initial yield spread of 6132 European mortgage-backed securities (MBS), covering a 20-year period between 1999 and 2018. We find that frequent issuers have certification value, and it increases as the credit cycle approaches its peak, as lending standards loosen, and information asymmetries in securitization markets increase. Investors value frequent issuers more favourably on riskier, difficult to evaluate MBS. We find that after the great financial crisis (GFC), investors began to attribute more value to frequent issuers, regardless of MBS credit quality. We also find that in the pre-crisis period, investors required higher yields to compensate for perceived rating shopping, which is not observed after the GFC. Finally, we show that investors expect higher yields on deals closed by subsidiaries of foreign banks.

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WICKSELL'S INFLATIONARY CREDIT CYCLE

Metroeconomica ◽

10.1111/j.1467-999x.1993.tb00756.x ◽

1993 ◽

Vol 44 (2) ◽

pp. 146-166 ◽

Cited By ~ 3

Author(s):

Michael J. Gootzeit

Keyword(s):

Credit Cycle

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Credit cycle dependent spread determinants in emerging sovereign debt markets

Emerging Markets Review ◽

10.1016/j.ememar.2013.03.002 ◽

2013 ◽

Vol 17 ◽

pp. 209-223 ◽

Cited By ~ 17

Author(s):

Christoph Riedel ◽

Kannan S. Thuraisamy ◽

Niklas Wagner

Keyword(s):

Sovereign Debt ◽

Debt Markets ◽

Credit Cycle ◽

Cycle Dependent

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Business Cycle and Credit Cycle: New Evidence in Italy

SSRN Electronic Journal ◽

10.2139/ssrn.2490935 ◽

2014 ◽

Author(s):

Vincenzo Chiorazzo ◽

Vincenzo D'Apice ◽

Pierluigi Morelli ◽

Giovanni Walter Puopolo

Keyword(s):

Business Cycle ◽

Credit Cycle ◽

New Evidence

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Predicting Financial Distress Based on the Credit Cycle Index: A Two-Stage Empirical Analysis

Emerging Markets Finance and Trade ◽

10.2753/ree1540-496x460305 ◽

2010 ◽

Vol 46 (3) ◽

pp. 67-79 ◽

Cited By ~ 7

Author(s):

Bi-Huei Tsai ◽

Chih-Huei Chang

Keyword(s):

Empirical Analysis ◽

Financial Distress ◽

Cycle Index ◽

Two Stage ◽

Credit Cycle

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Does the Credit Cycle Have an Impact on Happiness?

International Journal of Environmental Research and Public Health ◽

10.3390/ijerph17010183 ◽

2019 ◽

Vol 17 (1) ◽

pp. 183 ◽

Cited By ~ 1

Author(s):

Tinghui Li ◽

Junhao Zhong ◽

Mark Xu

Keyword(s):

Fixed Effects ◽

Well Being ◽

Gdp Per Capita ◽

Subjective Well Being ◽

Fixed Effects Model ◽

Credit Expansion ◽

Transmission Channels ◽

Credit Cycle ◽

Per Capita ◽

The Relationship

The 2008 international financial crisis triggered a heated discussion of the relationship between public health and the economic environment. We test the relationship between the credit cycle and happiness using the fixed effects model and explore the transmission channels between them by adding the moderating effect. The results show the following empirical regularities. First, the credit cycle has a negative correlation with happiness. This means that credit growth will reduce the overall happiness score in a country/region. Second, the transmission channels between the credit cycle and happiness are different during credit expansion and recession. Life expectancy and generosity can moderate the relationship between the credit cycle and happiness only during credit expansion. GDP per capita can moderate this relationship only during credit recession. Social support, freedom, and positive affect can moderate this relationship throughout the credit cycle. Third, the total impact of the credit cycle on happiness will become positive by the changes in the moderating effects. In general, we can improve subjective well-being if one of the following five conditions holds: (1) with the adequate support from the family and society, (2) with enough freedom, (3) with social generosity, (4) with a positive and optimistic outlook, and (5) with a high level of GDP per capita.

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