Senior-subordinated structure: buffer or signal in securitisation?

By exploiting a unique and proprietary dataset comprising granular deal- tranche-level data on global portfolio of securitisation deals, we empirically test the buffer vs signalling hypothesis credit enhancements in securitisation. We do so by focusing one internal enhancement associated with design financial securities securitisation, i.e. subordination. This study provides novel evidence role played subordination suggesting that real dichotomy between effects does not hold. Our findings indeed highlight serves both as against observable risk signal unobservable quality to third-party investors market; moreover, our results are robust wide battery robustness tests. findings, international relevance, contribute literature information asymmetries originators offer new policy insights light recent agreement reached European lawmakers national governments revive market.