Working Paper | 2013

The Rise and Fall of Securitization

by Sergey Chernenko, Samuel G. Hanson and Adi Sunderam


The rise and fall of nontraditional securitizations—collateralized debt obligations and mortgage-backed securities backed by nonprime loans—played a central role in the financial crisis. Little is known, however, about the factors that drove the pre-crisis surge in investor demand for these products. Examining insurance companies' and mutual funds' holdings of fixed income securities, we find evidence suggesting that both agency problems and neglected risks played an important role in driving investor demand for nontraditional securitizations prior to crisis. We also use our holdings data to shed light on the factors that drove the dramatic collapse of securitization markets beginning in mid-2007. Contrary to conventional crisis narratives, we find little evidence of widespread fire sales. Instead, our evidence is more consistent with the idea that a self-amplifying buyers' strike drove the dramatic collapse of securitization markets.

Keywords: Debt Securities; Financial Markets; Financial Crisis;


Chernenko, Sergey, Samuel G. Hanson, and Adi Sunderam. "The Rise and Fall of Securitization." Working Paper, December 2013.