Unfolding the Subprime Crisis: A study on the origin of a global crisis

Abstract: This study examines the subprime crisis, and more specifically, possible causes behind the misjudgements in the evaluation of downgraded structured-finance products collateralizing subprime mortgages. These subprime CDOs were created in order to meet the demand for high-yield products and customized to fit a broad investor base. The results show that the misjudgements behind the investment decisions were caused by numerous factors from which a self-regulated subprime market, lack of historical data, and the complex structured-finance products were the most prominent elements.