Determinants of Asset-Backed Security Prices in Crisis Periods

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William Perraudin and Shi Wu

This paper investigates the different factors that contribute to the cross-sectional pattern of spreads in Asset-Backed Security (ABS) prices in times of crisis. The periods include the crisis in the Manufactured Housing sector in 2004 and the turmoil in mortgage backed ABS in 2007. The cross section of prices for a given rating category appear to be poorly explained by liquidity and risk and there is evidence of a collapse in market confidence in the ratings agency classifications.