Hedge funds, CDOs and the financial crisis: An empirical investigation of the “Magnetar trade”

► The Magnetar trade is an arbitrage strategy on the US housing market, using CDOs. ► The hedge fund Magnetar presumably helped creating CDOs that are designed to fail. ► The paper provides evidence that Magnetar-sponsored CDOs are indeed overly risky. ► Initial tranche ratings and yield spreads reflect this higher riskiness.