Table 4 Predictive power of initial yield spreads and downgrade magnitude

From: The predictive strength of MBS yield spreads during asset bubbles

  (1) (2) (3) (4)
Spread 0.038*** 0.009 0.036*** 0.025*
  (0.013) (0.014) (0.013) (0.014)
Credit bubble 4.324*** 2.459***   
  (0.841) (0.933)   
Credit bubble × spread   0.080***   
   (0.025)   
Housing bubble    − 0.252 − 2.413***
    (0.241) (0.499)
Housing bubble × spread     0.105***
     (0.021)
Weighted average life 1.274*** 1.162*** 1.270*** 1.083***
  (0.124) (0.098) (0.112) (0.135)
Controls for     
 Years Yes Yes Yes Yes 
Observations 1574 1574 1574 1574
Pseudo R-squared 0.146 0.150 0.146 0.156
  1. This table reports ordered logit regressions of the Downgrades Magnitude of European MBS tranches on the log of initial yield spreads and credit ratings. The sample includes all AAA-rated floating tranches issued between 1999 and June 2007. Credit Bubble equals to 1 if the deal is issued during the boom period of 2005 and the first half of 2007. Housing Bubble equals to 1 if the deal is issued during the housing bubble period in the issuance country. Spread is the quoted spreads at issuance in excess of the benchmark, i.e. Euribor. Weighted Average Life of a bond is computed as the weighted average time until each monetary unit of principal remains outstanding. Credit Rating is a factor variable controlling for the fixed effect of individual credit rating indicators at the tranche level. Time is a factor variable consisting of the issuance periods annually. Standard errors in parentheses are clustered at the deal level
  2. ∗∗∗, ∗∗, and ∗ represent significance at the 1%, 5%, and 10% levels, respectively