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Canary in a Coalmine: Securities Lending Predicting the Performance of Securitized Bonds

Author

Listed:
  • Massa, Massimo
  • Manconi, Alberto
  • Kempf, Elisabeth
Abstract
In illiquid markets, trading by informed investors can have limited predictive power, because trading volumes are low and may not be timely. In these conditions, changes in the lendable amounts of securities can act as a canary in a coalmine, and predict future performance when trading activity cannot. We test this argument on the market for structured finance products (“securitized bonds†). We find strong evidence that changes in amounts available for lending (lendable) predict future performance (delinquency and foreclosure rates). In contrast, we do not find any evidence of predictability from changes in the amounts on loan. While investor trades have comparable predictive power to changes in lendable amounts in general, lendable amounts are a better predictor in illiquid markets. Overall, these findings are consistent with the hypothesis that securities holders (lenders) possess material information in this segment.

Suggested Citation

  • Massa, Massimo & Manconi, Alberto & Kempf, Elisabeth, 2017. "Canary in a Coalmine: Securities Lending Predicting the Performance of Securitized Bonds," CEPR Discussion Papers 11993, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11993
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Securities lending; Informed trading; Securitization;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G01 - Financial Economics - - General - - - Financial Crises

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