Week Eight: Research Paper - List Of Potential Research Topi ✓ Solved

Week Eight: Research Paper - List of potential research topi

Week Eight: Research Paper - List of potential research topics. Select a topic from the list provided below or from the chapter readings.

Topics: Financial Markets; Capital Allocation Process; Debt, Equity and Derivative; Securitization; Mortgage-backed securities; Federal Reserve Policy; Investment Fund; Regulation of Financial Institution; U.S. Stock Market; Financial Statements & Reports; Working Capital; Sarbanes-Oxley and Financial Fraud; Performance Evaluation; Return on invested capital; The Federal Income Tax System; Corporate Capital Gains; Financial Analysis & Financial Ratios; Common Size Analysis & Trend Analysis; Comparative Ratios & Benchmarking; Time Value of Money; Perpetuities & Annuities; What loans really cost; The Great Recession of 2007; Bonds Market; Credit Default Swaps; Sinking Funds; Determinants of Market interest rates; Bond Ratings; The term structure of interest rates; Bankruptcy & Reorganization; Financing with Junk Bonds; Investment Returns & Risk; What does investment risk mean?; Risk in a portfolio context; Diversification and Multi-Stock Portfolios; Capital Asset Principal Model; Bernie Madoff Story; The Efficient Markets Hypothesis; The Fama-French Three-Factor Model; Corporate Valuation and Stock Prices; Do stock values affect long term or short term cash flows?; Why are stock prices so volatile?; Financial options; Employee Stock Options; The Black-Scholes Option Price Model (OPM); Taxes and Stock Options; The Weight Average Cost of Capital; Corporate Valuation and the Cost of Capital; Global Variation in the cost of capital; Managerial Issues and the Cost of Capital; Capital Budgeting; Capital Rationing; Risk Analysis in Capital budgeting; Risk Analysis; Project Valuation; The cash flow effect of asset purchases and Depreciation; Externalities; Tax Depreciation; Financial Planning; Implementing the Target Capital Structure; Economies of Scale; Conflicts between stockholders & Creditors; Conflicts between managers & shareholders; Monitoring and Discipline by the Board of Directors; Charter provisions and by laws that effect the likelihood of hostile takeovers; Using compensation to align managerial and shareholder interests; Capital Structure and Internal Control systems; Environmental Factors outside a firm’s control; Stock Repurchase; Tax Effect Theory; Dividend Irrelevance Theory; Empirical Evidence on Distribution Policies; The impact of Distribution on Intrinsic Value; The pros and cons of dividends and repurchases; Capital structure; Business risk and financial risk; Capital structure theory; Using the Black-Sholes Option Pricing Model to value equity; Managing the maturity structure of Debt; Supply Chain Management; Credit Policy; The cost of trade credit; Revolving credit agreement; Multinational versus domestic Financial Management; Exchange rates; Exchange rates & international trade; The international monetary system and exchange rate policies; Purchasing power parity; International Money and Capital Markets.

Research Paper: This is a graduate course and students will be expected to research and write papers summarizing in their own words what they have found on current topics from the weekly readings. Research is a theoretical review of relevant literature and application of findings in the literature to a topic related to a specific industry, field, or business problem. The research must be conducted using peer-reviewed academic or trade journals.

Assignment Requirements: i. Choose a research topic from the chapter readings or from the list provided. ii. Find a minimum of four (4) peer-reviewed articles on your topic; five (5) or more preferred. Articles should be relevant and preferably published within the last five years. iii. Write a four (4) to five (5) page double-spaced paper in APA format (length excludes cover page, abstract, and references). iv. Structure: a. Cover page b. Overview describing importance of the research topic to current business and professional practice. c. Purpose of research reflecting potential benefit to practice and the larger body of research. d. Review of the literature summarized in your own words with appropriate citations. e. Practical application: describe how findings can inform and improve current business and professional practice related to the topic. f. Conclusion g. References in APA format. Plagiarism is not allowed.

Paper For Above Instructions

Overview: Importance of Mortgage-Backed Securities

Mortgage-backed securities (MBS) and related securitization instruments played a pivotal role in modern credit markets and were central to the Global Financial Crisis of 2007–2009. Understanding MBS is critical for risk managers, regulators, investors, and corporate finance professionals because securitization affects credit allocation, liquidity, systemic risk, and the behavior of originators and intermediaries. Efficient securitization can lower funding costs and broaden credit access, but flawed structures, misaligned incentives, or poor risk assessment can amplify systemic fragility (Coval, Jurek, & Stafford, 2009; Gorton & Metrick, 2012).

Purpose of Research

The purpose of this research is to synthesize peer-reviewed literature on mortgage-backed securities to identify mechanisms that generate fragility, evaluate how securitization affected underwriting incentives and liquidity during crises, and derive actionable lessons for industry practitioners and regulators. This review aims to inform better structuring of securitized products, improved risk monitoring, and policy measures that reduce systemic spillovers while preserving credit intermediation benefits (Keys et al., 2010; Brunnermeier, 2009).

Review of the Literature

Coval, Jurek, and Stafford (2009) provide a comprehensive assessment of structured finance markets, illuminating pricing anomalies created by tranche structures and the impact of correlation assumptions on valuation. Their analysis demonstrates how complexity and model dependence can lead to mispricing and concentration of tail risk.

Gorton and Metrick (2012) link securitization to runs in short-term funding markets, showing how the use of highly rated MBS as collateral fueled repo intermediation and created channels for rapid deleveraging when confidence eroded. Their work explains why collateralized structures can transmit rather than mitigate shocks.

Keys et al. (2010) empirically document that originate-to-distribute models weakened screening incentives: loans that were securitized tended to have lower underwriting standards, increasing default propensity. This behavioral channel helps explain supply-side deterioration preceding the crisis.

Brunnermeier (2009) and Adrian & Shin (2010) emphasize liquidity and leverage dynamics: market participants’ margin and funding requirements interact with asset liquidity to amplify deleveraging cycles. The literature shows securitized products’ liquidity is endogenous and can evaporate under stress (Adrian & Shin, 2010; Brunnermeier, 2009).

Demyanyk and Van Hemert (2011) and Purnanandam (2011) analyze loan-level and contractual features, showing that adjustments in contract complexity, credit enhancements, and the use of credit default swaps and CDO tranching changed risk dispersion and obscured originator exposures. Covitz, Liang, and Suarez (2013) document how asset-backed commercial paper markets experienced panic during the crisis, illustrating cross-market contagion from securitized instruments.

Gennaioli, Shleifer, and Vishny (2012) theorize how investor neglect of rare risks and overreliance on models fostered demand for complex securities, contributing to fragility. Benmelech and Dlugosz (2009) explore rating agencies’ roles, highlighting incentive problems and rating inflation that misled investors and regulators alike.

Practical Application to Business and Professional Practice

First, originators and portfolio managers must align incentives: retaining economically meaningful portions of securitized exposures (skin-in-the-game) can improve screening and monitoring (Keys et al., 2010; Purnanandam, 2011). Second, risk officers should stress-test funding and collateral channels to model liquidity spirals documented by Gorton and Metrick (2012) and Brunnermeier (2009). Third, investors and compliance teams should demand transparency on tranche-level exposures, correlation assumptions, and model risk; independent valuation practices can mitigate the model-dependence cautioned by Coval et al. (2009).

Regulators should prioritize counterparty and systemic metrics—such as repo collateral concentration, ABCP roll-over risk, and interconnectedness measures—to detect early signs of fragility (Covitz et al., 2013; Adrian & Shin, 2010). Improved oversight of rating methodologies and disclosure standards addresses issues raised by Benmelech & Dlugosz (2009). Finally, diversified funding sources and buffers for liquidity provide operational resilience against the endogenous illiquidity found in MBS markets (Brunnermeier, 2009).

Conclusion

The literature converges on the view that securitization offers clear benefits for credit intermediation but can generate fragility when combined with misaligned incentives, model risk, and fragile funding markets. Empirical and theoretical research indicates concrete remedies—originator skin-in-the-game, improved transparency, stronger stress-testing for liquidity and collateral channels, and regulatory focus on systemic linkages—that can reduce the likelihood of future crises while preserving securitization’s economic benefits. Practitioners and policymakers should integrate these findings into product design, risk governance, and regulatory frameworks to enhance financial stability (Coval et al., 2009; Gorton & Metrick, 2012; Keys et al., 2010).

References

• Coval, J., Jurek, J., & Stafford, E. (2009). The economics of structured finance. Journal of Economic Perspectives, 23(1), 3–25.
• Gorton, G., & Metrick, A. (2012). Securitized banking and the run on repo. Journal of Financial Economics, 104(3), 425–451.
• Keys, B. J., Mukherjee, T., Seru, A., & Vig, V. (2010). Did securitization lead to lax screening? Evidence from subprime loans. Quarterly Journal of Economics, 125(1), 307–362.
• Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. Journal of Economic Perspectives, 23(1), 77–100.
• Covitz, D., Liang, N., & Suarez, G. (2013). The evolution of a financial crisis: Panic in the asset-backed commercial paper market. Journal of Finance, 68(3), 815–848.
• Demyanyk, Y., & Van Hemert, O. (2011). Understanding the subprime mortgage crisis. Review of Financial Studies, 24(6), 1848–1880.
• Purnanandam, A. (2011). Originate-to-distribute model and the subprime mortgage crisis. Review of Financial Studies, 24(6), 1881–1912.
• Gennaioli, N., Shleifer, A., & Vishny, R. (2012). Neglected risks, financial innovation, and financial fragility. Journal of Financial Economics, 104(3), 452–468.
• Adrian, T., & Shin, H. S. (2010). Liquidity and leverage. Journal of Financial Intermediation, 19(3), 418–437.
• Benmelech, E., & Dlugosz, J. (2009). The credit rating crisis. In NBER Macroeconomics Annual 2009 (pp. 69–122). National Bureau of Economic Research.