Mortgage loan securitization and personal consumption smoothening Jenny Gu 1 & Rodrigo J. Hernandez 2 & Pu Liu 3 & Yingying Shao 4 # Springer Science+Business Media New York 2015 Abstract In this paper we examine the extent to which personal consumptions are sheltered from state-specific economic shocks because of banks’ mortgage loan secu- ritizations. We posit that securitization contributes to personal consumption smoothening due to securitizations’ positive effect on banks’ credit supply, which reduces consumers’ consumption constraints during economic shocks. Using data for U. S. banks’ mortgage loan securitizations from 1989 to 2008, we show that personal consumption smoothening is positively related to secu- ritization. The finding of a significant relationship between loan securitizations and consumption smoothening contributes to the continuing debate on the role of financial innovation in real economy. Keywords Securitization . Mortgage loans . Consumption smoothening JEL Classification G18 . G21 J Econ Finan DOI 10.1007/s12197-015-9338-2 * Pu Liu pliu@walton.uark.edu Jenny Gu jgu@udallas.edu Rodrigo J. Hernandez rjhernand@radford.edu Yingying Shao yshao@towson.edu 1 College of Business, University of Dallas, Dallas, USA 2 Department of Finance, College of Business and Economics, Radford University, Radford, USA 3 Department of Finance, Sam M. Walton College of Business, University of Arkansas, Fayetteville, AR, USA 4 Department of Finance, College of Business and Economics, Towson University, Towson, USA