NDLI: Detecting and explaining systemic risks of mortgage banks

Content Provider	Springer Nature Link
Author	Paul, Stephan Weiß, Gregor N. F.
Copyright Year	2011
Abstract	In recent history, financial markets worldwide experienced severe turmoil due to the subprime crisis originating from the practice of US mortgage banks to securitize loans given especially to subprime borrowers. In the same crisis, several distressed banks were bailed out by states with even more banks receiving financial aids from governments. Using a unique data sample of 100 announcements of US mortgage banks between 2006 and 2009, this paper provides empirical evidence that isolated failures of US mortgage banks caused significant contagion effects in the US financial system. Conversely, especially the bailouts of Fannie Mae and Freddie Mac led to significant positive valuation effects at rival banks. In the cross-sectional analyses, contrary to previous studies in the literature on past financial crises, we find evidence for pure contagion effects following the failures of US mortgage banks. Furthermore, we analyze the reactions of the CDS spreads of several large US banks to the announcements of mortgage banks using a novel mixture copula model. The results show that the contagion effects were limited to the stock market thus underlining the notion of an irrational response of (stock) market participants. The results from our cross-sectional and CDS data analyses in turn indicate that several of the failures of US mortgage banks during the subprime crisis caused irrational contagion in the US financial system thus justifying government intervention. Finally, we rule out the possibility that the contagion effects limited to the US stock market were caused by a herding of investors.
Starting Page	109
Ending Page	132
Page Count	24
File Format	PDF
ISSN	00442372
Journal	Zeitschrift für Betriebswirtschaft
Volume Number	82
Issue Number	1
e-ISSN	18618928
Language	English
Publisher	SP Gabler Verlag
Publisher Date	2012-01-13
Publisher Place	Wiesbaden
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Contagion Subprime crisis Bailout Mortgage bank Management/Business for Professionals Human Resource Management Accounting/Auditing Production/Logistics/Supply Chain Organization/Planning Business/Management Science
Content Type	Text
Resource Type	Article
Subject	Business and International Management Economics and Econometrics

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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