Not on the Same Page - (Text-)Complexity in European Securitizations
Martin Thomas Hibbeln Ralf Metzler Werner Osterkamp
We investigate if originating banks increase the complexity of European Mortgage Backed Securities (MBS) to obfuscate low securitization quality. When measuring securitization complexity with traditionally used proxies we find no worse performance of more complex MBS. However we provide evidence that originators attempt to hide low securitization quality resulting in higher defaults and lower returns by lowering the readability of the investment prospectus. Investors do not price this dimension of complexity: Since the financial crisis investors demand a significant risk premium for traditional complexity measures but not for text readability.
D82 D83 G01 G12 G14 G23
Complexity Securitizations Security Design Text Analysis