Brexit referendum and the UK securitization market

ABSTRACT

We examined the perceived risk of Brexit referendum (BR) in the United Kingdom (UK) securitization market, using 1,021 securitized bonds issued between 2011 and 2018. We find an unexpected negative relationship between the BR outcome and the initial yield spreads of asset-backed securities (ABS), even after accounting for the downward-adjusted credit ratings in the post-BR period. We do not observe this effect on mortgage-backed securities (MBS). Our findings imply that investors diversified into ABS bonds under uncertainty in the post-BR period.

KEYWORDS:

• Securitization
• Brexit referendum
• United Kingdom
• ABS/MBS pricing

JEL CLASSIFICATION:

• G21
• G28

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We map credit ratings onto a numerical scale where AAA = 1, AA+ = 2 and AA = 3 and so on, based on a standardized 19 points whereby from AAA (1) to CCC- (19).