Neglected Risks in the Communication of Residential Mortgage-Backed Securities Offerings

• 成果类型: Article
• 署名作者: Zhang, Harold H.; Zhao, Feng; Zhao, Xiaofei
• 署名单位: University of Texas System; University of Texas Dallas; Georgetown University; University of Texas System; University of Texas Dallas
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13278
• 发表日期: 2024
• 页码: 129-172
• 关键词: ANNUAL-REPORT READABILITY; information-content; Credit expansion; Textual analysis; CURRENT EARNINGS; DISCLOSURES; investors; complexity; prices; MODEL

摘要

Examining the contractual disclosures during the sale of private-label residential mortgage-backed securities before the 2008 financial crisis, we find that textual contents in the risk-factor section predict subsequent losses and yet were not reflected in pricing. Insurance companies, especially life insurers and insurers with low regulatory capital ratios, are more exposed to textual risks. Consistent with issuers hedging litigation risks with disclosure, we find that textual contents are associated with second-lien underreporting and preissuance written communications. Overall, we find that investors neglected risks in the purportedly safe assets before the crisis.