Editorial of special issue 2016 Portsmouth – Fordham conference on Banking and Finance

• Date: 01 May 2019
• Author: Ioannis Chatziantoniou,Fotios Pasiouras,Iftekhar Hasan
• Published date: 01 May 2019
• DOI: http://doi.org/10.1111/fmii.12105

DOI: 10.1111/fmii.12105

EDITORIAL

Editorial of special issue 2016 Portsmouth –

Fordham conference on Banking and Finance

In September 2016, the Portsmouth Business School (University of Portsmouth, UK) and the Center for Research in

Contemporary Finance (FordhamUniversity, USA) organized an international conference on Banking and Finance. The

programincluded nearly 200 presentations, and plenary speeches by prominent scholars. After a rigorous double-blind

review process, eight high quality papers were accepted for inclusion in this special issue of Financial Markets, Institu-

tions & Instruments. We discuss these studies briefly below.The first three studies examine various aspects of the mort-

gage market. The fourth study also focuses on tangible asset backed loans, although the application of the proposed

framework is not limited to mortgages. The fifth and sixth study deal with information asymmetry in stock markets.

The last two papers focus on bank risk.

Deku, Kara and Marques-Ibanez consider the role of trustees in securitization pricing and whether investors relied

on trustees to mitigate mortgage backed security (MBS) risks. Using a sample of European MBS issuances between

1999 and 2007, they find that engaging reputable trustees led to lower spreads during the credit boom period prior to

the 2007–2009 financial crisis. They also conclude that the reputation of trustees was regarded as a critical yardstick,

as risk assessment became more difficult. Finally, theyshow that while investors experienced extensive losses during

the crisis, they did not exclusivelyrely on credit ratings.

Antinolfi and Brunetti examine the relationship between the volatility of US economic activity and MBS markets

between 1974 and 2011. Using quarterly observations, they construct various measures of volatility for the growth

rates of real GDP,consumption, housing consumption, residential investment, and investment in singlehousing. Subse-

quently, they examinethe empirical relation between real and financial variables using a linear autoregressive model

and a non-linear Markovswitching model. Their results show a negative relationship between the growth of mortgage-

backed securities and the volatility of real activity in the first part of the sample, between the mid -1970s and 2000;

however,in the second part of the sample the relationship is to some extent reversed, with volatility in real economic

growth being positively related to changes in the MBS marketvolume.

Delis, Hasan and Tsoumasuse a r ichdataset on mortgage applications from the HMDA for the period 1992–2012

to test the hypothesis that the income elasticity of mortgage loan demand increased in the period 2002–2006. Using

loan-demand equations they find that the income elasticity of mortgage loan demand not only did not rise for the mid-

dle class before the eruption of the subprime crisis, but in fact it considerably fell for the mid- and lower-middle class

income groups during that period. As the authors highlight, the decreases are quite large: in 1997 a 10% increase in the

incomeof the applicants belonging in either of the mid- or lower-middle groups increases the amountof loan demanded

byapproximately 6%; in 2007 the same increase raises the amount of loan demanded by only 3%. The authors interpret

their findings as evidence that increases in the house prices during the pre-crisis period were not matched by increases

in income of middle-class individuals to purchase a given additional increment of housing.

Wojakowski, Ebrahim, Jaafar and Osman Salleh propose a theoretical model for structuring collateralized loans

free of the endemic risk of default. The authors employ the pragmatic approach of a margin loan in the configuring of

collateralized debt to yield a quasi-default-free facility and link it to the current Basel III regulatory framework. Their

findings support the view that a default-prone collateralized loan has a receding economic efficiency with heightened

agency cost accruing to the risk of default. The authors conclude by discussing various policy implications of this work.

c

2019 New YorkUniversity Salomon Center and Wiley Periodicals, Inc.

Financial Markets,Inst. & Inst. 2019;28:59–60. wileyonlinelibrary.com/journal/fmii 59