Stock price effects of asset securitization: The case of liquidity facility providers

We analyze the effects of asset securitization announcements on the market value of banks involved in the transaction as liquidity facility providers. Based on a unique sample of 97 European securitization transactions undertaken between 2002 and 2010, we find that abnormal returns occur around the announcement dates, and that they are positively related to the respective bank's liquidity. Moreover, abnormal returns tend to be negative for transactions involving high-risk portfolios, and they have decreased significantly after the global financial crisis. Our results suggest that providing liquidity facilities in securitization transactions is considered value relevant information by equity investors, and that bank management may even be able to infer the likely sign of the market reaction based on the respective bank's characteristics, and current business environment.