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How to Measure Securitization: A Structural Equation Approach

van der Plaat, Mark T. (2021): How to Measure Securitization: A Structural Equation Approach.

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Abstract

Securitization is a popular concept in banking and finance. Empirical literature measures securitization with a wide range of variables, which raises the question how to measure securitization. Using a structural equation modeling approach, we examine whether proxy variables used in the literature have a common securitization factor. We find that there are two common factors for ABS-CDO securitization, and ABCP securitization. These factors correlate strongly with factors for loan sales and credit derivatives, indicating that these four factors together are used by banks to hedge credit risk. We present some recommendations to improve the measurement of securitization.

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