Not on the Same Page - (Text-)Complexity in European Securitizations

We investigate if originating banks increase the complexity of European Mortgage Backed Securities (MBS) to obfuscate low securitization quality. When measuring securitization complexity with traditionally used proxies, we find no worse performance of more complex MBS. However, we provide evidence that originators attempt to hide low securitization quality, resulting in higher defaults and lower returns, by lowering the readability of the investment prospectus. Investors do not price this dimension of complexity: Since the financial crisis investors demand a significant risk premium for traditional complexity measures but not for text readability