Essays on Shadow Banking and Asset Pricing

This dissertation deals with the topics related to securitization and with pricing of finan- cial assets in general. The topics are analyzed from a macroeconomic perspective using various theoretical and empirical methods. The first chapter studies the efficiency of financial intermediation through securitiza- tion with asymmetric information about the quality of securitized loans. In this theoret- ical model I show that, in general, by providing reputation-based implicit recourse, the issuer of a loan can credibly signal its quality. However, in boom stages of the business cycle, information on loan quality remains private, and lower quality loans accumulate on balance sheets. This deepens a subsequent downturn. The longer the duration of a boom, the deeper the fall of output in a subsequent recession will be. I present empir- ical evidence from securitization deal level data consistent with this result. Finally, the model suggests that excessive regulation which requires higher explicit risk-retention by the originators of loans can adversely affect both quantity and quality of investment in the economy. The second chapter presents a Markov-switching DSGE model which focuses on the adverse selection on re-sale markets for securitized products. The complexity of secu- ritized assets, which make it..