n?u=RePEc:bde:wpaper:1526&r=all

securitization volumes and an aggregate measure (all), with their summation. As is clear

from the figure, while securitization started from rather modest levels by early 1990s,

aggregate securitization steadily increased reaching their peak in March 2007. 6 Figure 1

suggests that there is a structural break in the securitization process in 2007 where market

of synthetic securities froze and financial institutions and/or final investors started to move

away from the practice. This is long before the full blown realization of the financial crisis

in September 2008 triggered by the collapse of Lehman Brothers.

In the VAR, we include seasonally adjusted asset and mortgage backed securitization

transformed in annualized monthly log differences in percentage terms, denoting them

respectively, dABS and dMBS. 7 We also construct a monthly aggregate securitization

series (alls) being the simple sum of MBS and ABS (labelled as dALLs). Next to the

securitization data, our empirical exercise utilizes the following data series. Benchmark

monthly excess market returns (xr) annualized, obtained from the Kenneth French website,

are based on Fama-French method and summarize the excess return on the (equity)

marketovertheriskfreerate(3monthsT-Billrate). WeusemonthlyFama-BlissDiscount

Bonds as reported by CRSP to calculate annual excess bond returns (xbr) over 2,3,4 and

5 years horizons as described in Gurkaynak, Sack, and Wright (2007) for the calculation of

yields and in Cochrane and Piazzesi (2005) for the calculation of the excess bond returns,

i.e. xbr (n)

t+1 = r(n) t+1 − y(1) t where xbr (n)

t+1 denotes the n year excess log return, r(n) t+1 denotes

the log holding period return from buying an n-year bond at time t and selling it as n − 1

year bond at time t + 1 and y (1)

t denotes the log yield. We use monthly real price dividend

ratio (rpd) that is calculated using the log difference in real dividends and real stock

prices (S&P Composite Stock Price Index) as reported and updated by Robert Shiller’s

stock market data. Term spreads (spread) are computed as the difference between the five

year government bond rate and 3 months T-Bill in percentages per annum. Real short

term rates (realr 3m) are calculated using the 3 months T-Bill rate and the CPI inflation.

Our full sample covers the period from January 1993 up until October 2014. However,

conditional mean and variances have most likely changed as a result of the financial crisis

and central bank intervention, which influenced market liquidity and consequently the

securitization market, preventing us from estimating the full period without accounting

for the regime change. In order to do so we would need a longer post-crisis dataset than

we currently have. As a result, in our benchmark VAR estimations we only use data from

6 We note that the asset backed securitization increased from a monthly average of 5.2 billion USD in

1993 to 86.4 billion USD in 2006 (a 1540% increase) and the mortgage backed securitization increased

from a monthly average of 3.5 billion USD in 1993 to 93.4 billion USD in 2006 (a 2603% increase). By the

second quarter of 2007 both securitization markets collapsed and volumes remained at much lower levels

as compared to pre-crisis period.

7 We use Census X12 method to remove cyclical seasonal movements from securitization series and to

extract the underlying trend component. In our estimations we also use non-adjusted series to check for

the robustness of the results. Our results by and large do not change.

BANCO DE ESPAÑA 13 DOCUMENTO DE TRABAJO N.º 1526