Securitization and Banks’ Equity Risk
Posted: 19 Nov 2012 Last revised: 24 Aug 2022
Date Written: September 4, 2010
Abstract
This research explores the effects of securitization on the market’s perception of banks’ risk exposure between 2002 and 2007. Our results show that, contrary to some prior evidence in the literature, securitizing banks actually had lower systematic betas until 2007. We find no evidence of increasing idiosyncratic risk with securitization. We identify significant structural break in 2007, when securitizing banks experienced jumps in both systematic and idiosyncratic risks. Finally, we confirm the general belief that larger banks tend to have higher systematic risk and lower idiosyncratic risk because of diversification.
Keywords: Securitization, Bank equity risk, Systematic risk, Banking
JEL Classification: G21, G12, G24
Suggested Citation: Suggested Citation