Do Investors Value Securitization Activities: An Empirical Analysis

We perform an empirically analysis on how investors in stock market and bond market react to the issuances of asset-backed and mortgage-backed securitizations issued by different entities. Using standard an event study method, we find that securitization activities are generally associated with negative abnormal returns in the stock market. This is true for both asset-backed and mortgage-backed securitizations. Further, we partition the sample according to the time period of securitizations. We find in the 1988-1997 time span, the overall stock market reaction to securitization is insignificantly different from zero. The negative relation is mainly driven by securitization activities during the 1998-2007 time span. We report that banking capitalization has an important implication for the stock market reaction to a sample of securitizations issued by banking institutions. Our regression results indicate that the size of the sponsor plays an important certification role and is positively associated with announcement returns. In addition, frequent participants in the securitization market experience unfavorable reactions on the announcement of securitizations. Our results from bond market indicate that bondholders of asset sellers experience positive excess returns on the announcement of securitizations.