Details
| Original language | English |
|---|---|
| Pages (from-to) | 102-120 |
| Number of pages | 19 |
| Journal | Journal of empirical finance |
| Volume | 21 |
| Issue number | 1 |
| Publication status | Published - 1 Mar 2013 |
| Externally published | Yes |
Abstract
Covered bonds are a promising alternative for prime mortgage securitization. In this paper, we explore risk premia in the covered bond market and particularly investigate whether and how credit risk is priced. In extant literature, yield spreads between high-quality covered bonds and government bonds are often interpreted as pure liquidity premia. In contrast, we show that although liquidity is important, it is not the exclusive risk factor. Using a hand-collected data set of cover pool information, we find that the credit quality of the cover assets is an important determinant of covered bond yield spreads. This effect is particularly strong in times of financial turmoil and has a significant influence on the issuer's refinancing cost.
Keywords
- Cover pool, Covered bonds, Credit risk, Financial crisis, Pfandbrief
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Journal of empirical finance, Vol. 21, No. 1, 01.03.2013, p. 102-120.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Credit risk in covered bonds
AU - Prokopczuk, Marcel
AU - Siewert, Jan B.
AU - Vonhoff, Volker
N1 - Funding information: Jan B. Siewert acknowledges financial support from the Konrad Adenauer Foundation and from the German Research Foundation.
PY - 2013/3/1
Y1 - 2013/3/1
N2 - Covered bonds are a promising alternative for prime mortgage securitization. In this paper, we explore risk premia in the covered bond market and particularly investigate whether and how credit risk is priced. In extant literature, yield spreads between high-quality covered bonds and government bonds are often interpreted as pure liquidity premia. In contrast, we show that although liquidity is important, it is not the exclusive risk factor. Using a hand-collected data set of cover pool information, we find that the credit quality of the cover assets is an important determinant of covered bond yield spreads. This effect is particularly strong in times of financial turmoil and has a significant influence on the issuer's refinancing cost.
AB - Covered bonds are a promising alternative for prime mortgage securitization. In this paper, we explore risk premia in the covered bond market and particularly investigate whether and how credit risk is priced. In extant literature, yield spreads between high-quality covered bonds and government bonds are often interpreted as pure liquidity premia. In contrast, we show that although liquidity is important, it is not the exclusive risk factor. Using a hand-collected data set of cover pool information, we find that the credit quality of the cover assets is an important determinant of covered bond yield spreads. This effect is particularly strong in times of financial turmoil and has a significant influence on the issuer's refinancing cost.
KW - Cover pool
KW - Covered bonds
KW - Credit risk
KW - Financial crisis
KW - Pfandbrief
UR - http://www.scopus.com/inward/record.url?scp=84873138441&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2012.12.003
DO - 10.1016/j.jempfin.2012.12.003
M3 - Article
AN - SCOPUS:84873138441
VL - 21
SP - 102
EP - 120
JO - Journal of empirical finance
JF - Journal of empirical finance
SN - 0927-5398
IS - 1
ER -