Keywords
fire sales, RMBS, capital requirement, mark-to-market accounting, subprime crisis
Abstract
Many observers have argued that the fall in RMBS prices during the crisis was partly caused by fire sales. Using a unique dataset of RMBS transactions for insurance compa- nies, we show evidence supportive of a role, at the transaction level, of forced sales that occurred at discounted prices relative to fundamentals, and find that the RMBS market behaved as a whole as would be expected in the presence of fire sales. We show that risk- sensitive capital requirements and mark-to-market accounting can jointly create incentives for financial institutions subject to adverse capital shocks to sell stressed securities.
Original Publication Citation
Were there Fire Sales in the RMBS Market?, with Taylor D. Nadauld, Rene M. Stulz, and Shane Sherlund, Journal of Monetary Economics, 2021, vol. 122, issue C, 17-37.
BYU ScholarsArchive Citation
Merrill, Craig B.; Nadauld, Taylor D.; Stulz, René M.; and Sherlun, Shane M., "Were There Fire Sales in the RMBS Market?" (2021). Faculty Publications. 9114.
https://scholarsarchive.byu.edu/facpub/9114
Document Type
Peer-Reviewed Article
Publication Date
2021
Publisher
Journal of Monetary Economics
Language
English
College
Marriott School of Business
Department
Finance
Copyright Status
© 2021 Elsevier B.V. All rights reserved.
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