Download or read book Three Essays Concerning the Financial Economics of Mortgage Markets written by Darren James Aiello and published by . This book was released on 2018 with total page 189 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first chapter of this dissertation, I find that financially constrained mortgage servicers destroyed substantial MBS investor value during the financial crisis through their management of delinquent mortgages. Servicers have a contractual obligation to advance to the investors any monthly payments missed by borrowers. This chapter shows that, in order to minimize this obligation to extend financing to distressed borrowers, constrained servicers aggressively pursued additional foreclosures and modifications at the expense of MBS investors, borrowers, and future mortgage performance. IV regressions suggest that servicers' financial constraints caused 440,712 additional foreclosures. A one standard deviation increase in servicer financial constraints led to an average reduction in investor value of $22,298 per loan-causing aggregate investor value destruction of $84 billion. In the second chapter of this dissertation, I describe an important borrower risk factor observed privately by the issuer of non-agency RMBS. The private information available to the issuer is drawn from behavioral cues exhibited early in the life of the loan. Mortgage borrowers that make their first six payments at least a day prior to the due date are 14.8 percentage points less likely to become delinquent (equivalent to a 91-point increase in FICO score). This effect is persistent, unobservable at loan origination, and privately observed by the issuer prior to securitization. Both the credit rating agencies and the investor do not appear to be aware of this risk factor. Surprisingly, issuers are quicker to securitize loans with positive private signals rather than less promising loans. In the final chapter of this dissertation (with Mark J. Garmaise and Gabriel Natividad), we analyze competitive dynamics in the mortgage market. Using discontinuities in mortgage acceptance models to generate shocks to a bank's current local lending, we show that future applicants are attracted to growing lenders. Local mortgage markets resemble tournaments: a bank's originations are reduced by the lending of its quickest-growing competitors, not that of its overall competitors nor of its largest competitors. Moreover, future lending activity is convex in current originations. Tougher competition leads a bank to charge higher interest rates, partially due to the increased risk of its loans, and results in worse mortgage performance.
Download or read book Three Essays on the Housing and Mortgage Markets written by Yuan Wang and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on Information and Beliefs in Credit Markets written by Matthew Botsch and published by . This book was released on 2014 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is a collection of three essays in financial economics, specifically focused on the role of information and beliefs in credit markets. The first chapter establishes that private bank information about customers in primary lending markets exists. The second chapter shows that private information hinders banks' capacities to sell loans on secondary markets, unless the purchaser believes that the bank has committed to remain uninformed. The third chapter explores the welfare consequences of incorrect borrower beliefs about the economic environment on financial product choice. In the first chapter, my co-author and I hypothesize that while lending to a firm, a bank receives signals that allow it to learn and better understand the firm's fundamentals; and that this learning is private; that is, it is information that is not fully reflected in publicly-observable variables. We test this hypothesis using data from the syndicated loan market between 1987 and 2003. We construct a variable that proxies for firm quality and is unobservable by the bank, so it cannot be priced when the firm enters our sample. We show that the loading on this factor in the pricing equation increases with relationship time, hinting that banks are able to learn about firm quality when they are in an established relationship with the firm. In the second chapter, I present new evidence that lemon problems hinder trade on secondary mortgage markets. Using the geographic distance from lenders to borrowers as a proxy for the absence of private bank information, I document a systematic positive link between distance and the mortgage sale rate. Mortgage sale rates are higher when the originating lender is less likely to be informed about the borrower. I further show that the private mortgage sale rate locally depends on lender-borrower distance only above the conforming loan limit, in the illiquid jumbo market where the GSEs are barred from purchasing mortgages. This is consistent with the familiar tradeoff between market liquidity and seller incentives to acquire information. In the third chapter, I investigate how borrowers' incorrect beliefs about future inflation might bias their choice between fixed-rate and adjustable-rate mortgages. Borrowers who have experienced recent periods of greater inflation pay more for fixed-rate mortgage contracts and pay more in interest, at least over the first six yeras of the mortgage's life. That is, incorrect beliefs about future inflation are welfare-reducing both ex ante and ex post.
Download or read book Essays in Financial Economics written by Yupeng Wang (Scientist in business management) and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays in financial economics, with a focus on the effects of new technologies on traditional financial markets including venture capital market and mortgage market.
Download or read book Three Essays on Household Finance written by Alexander Calen Aberlin Kaufman and published by . This book was released on 2010 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation presents three essays on household finance. All three focus on contemporary U.S. consumer credit markets, with particular attention paid to how market organization and firm incentives mediate the way firms interact with customers and the types of contracts they offer. The first essay examines the question of whether securitization was responsible for poor underwriting standards during the recent mortgage crisis. The second essay attempts to quantify the effect of Fannie Mae and Freddie Mac's intervention in the conforming mortgage market on equilibrium outcomes such as price and contract structure. The third essay investigates how mutual ownership of a firm by its customers can limit that firm's incentive to offer contracts meant to take advantage of customers' behavioral biases.
Download or read book Three Essays on Financial Relationships in Credit Markets with Adverse Selection written by Charl Kengchon and published by . This book was released on 1989 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays in Financial Economics written by Matthieu Segol and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The three chapters of this PhD investigate the effects of financial constraints in several contexts. In the first chapter, we analyze the impact of new regulatory constraints on US banks' interest rate derivative portfolios. In particular, we evaluate the effect of the central clearing requirement for interest rate derivatives, which can represent a significant cost for end-users. Our results show that a significant number of banks rebalanced their derivative portfolio after the implementation of the reform, precisely in order to limit the use of central clearing. This type of behaviour indicates that the new regulatory landscape does not provide a cost incentive to move towards central clearing for all end-users subject to the reform. The second chapter evaluates the impact of inadequate bank loan terms on firms' intangible investment in Europe. This analysis is carried out using new survey data which provide information on firms' investment in several categories of intangible assets. In addition, surveyed firms are asked to indicate their satisfaction regarding several terms of their loan contract, allowing us to cover a large scope of possible financial constraints. Our results show that a satisfying loan amount is the main determinant of firms' probability to invest in intangibles. On the other hand, dissatisfaction with the loan rate, maturity and/or collateral requirements have a negative impact on firms' ability to invest in several intangibles simultaneously, preventing them to benefit from the complementarity of these assets. In the last chapter, I build a theoretical model designed to study the impact of collateral constraints on asset price stability in a market where investors have different degrees of ambiguity aversion. Collateral constraints and ambiguity aversion are financial markets' features which have been particularly studied during the 2007-2009 financial crisis given their possible role in the amplification of the initial shock. An important outcome of our specification is that expectations of ambiguity-averse agents regarding future growth are endogenous and, consequently, can be impacted by binding collateral constraints. Our simulations show that binding constraints can lead to reduced asset price volatility in this framework, suggesting a possible stabilizing effect of tighter financial regulations when a fraction of market participants are concerned about ambiguity.
Download or read book Three Essays on the Mortgage Market written by Munpyung O and published by . This book was released on 2010 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first paper reviews the existing theoretical work on the option-theoretic mortgage valuation. The mortgage market has become an increasingly important segment of the financial market. There are two strands in the mortgage valuation literature; reduced-form (econometric) and structural-form (option-theoretic) valuation model. The option theoretic model provides clear endogenous explanations as to why the mortgage termination occurs. This approach shows that the mortgage value is determined by the interaction between the contractual features of mortgages and the uncertain future economic environment.
Download or read book Essays in Financial Economics written by Samuel Arthur Kruger and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three independent essays. Chapter 1, "The Effect of Mortgage Securitization on Foreclosure and Modification," assesses the impact of mortgage securitization on foreclosure and modification. My primary innovation is using the freeze of private mortgage securitization in the third quarter of 2007 to instrument for the probability that a loan is securitized. I find that privately securitized mortgages are substantially more likely to be foreclosed and less likely to be modified. Chapter 2, "Disagreement and Liquidity," analyzes how disagreement between investors affects the relationship between trading, liquidity, and asymmetric information. Traditional models predict that asymmetric information should destroy trade and liquidity. In contrast, I document empirical evidence that asymmetric information increases trading volumes in stock, corporate bond, and option markets. To resolve this puzzle, I propose a model of overconfident disagreement trading in which private information enhances trading and liquidity. Chapter 3, "Is Real Interest Rate Risk Priced? Theory and Empirical Evidence," asks whether investors demand compensation for holding assets whose returns covary with real interest rate shocks. Empirically, there is little evidence that real interest rate risk is priced in the cross section of stocks or across asset classes. Theoretically, interest rate risk can be positively or negatively priced depending on whether interest rate changes are due to time preference shocks or consumption growth shocks.
Download or read book Three Essays on Consumer Finance written by Manisha Padi and published by . This book was released on 2017 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters on consumer financial contracts. Particularly, this thesis focuses on the regulation and design of markets for financial contracts, and their impact on household financial health. The first chapter studies the role of consumer protection law in the function of mortgage markets in the United States. Consumer protection laws are intended to improve consumer outcomes and are becoming more common, particularly in mortgage markets after the 2008 recession. Little empirical evidence exists about the benefits of these laws to consumer outcomes, relative to the potential compliance costs. This chapter studies the effect of two common types of consumer protection laws: seller standards of conduct, enforced through ex post lawsuits by prosecutors and consumers, and mandated disclosures, which require sellers to provide consumers with information to help them make better decisions. Using a natural experiment in Ohio, which introduced the Homebuyer's Protection Act in 2007, 1 study the impact of both seller standards of conduct and mandated disclosures on the performance of loans owned by Fannie Mae or Freddie Mac between 2002 and 2012. I find that imposing standards of conduct on lenders increases borrower defaults in the short term, and is correlated with a drop in foreclosures and fewer mortgage originations. Mandated disclosures decrease mortgage defaults in the short term, and the effect is correlated with smaller transactions, lower interest rates, and higher borrower credit scores. I introduce a simple model of strategic default showing that standards of conduct targeting lenders can provide incentives to lenders to be lenient towards all borrowers, increase borrower default, while mandated disclosure can induce behaviorally biased consumers to default less often. Taken together, the evidence suggests that seller standards of conduct result in lender lenience towards borrowers but operate by shifting the cost of dropping house prices from borrowers onto lenders. On the other hand, carefully designed disclosures can encourage consumers to be more responsible in repayment of loans and can decrease the overall impact of unexpected drops in house prices. The second chapter studies the impact of defined benefit pensions on retirees' consumption patterns. It is authored jointly with Professor Jerry Hausman. Retirees discontinuously decrease their consumption spending upon retirement, a phenomenon described as the retirement consumption puzzle. This chapter studies the impact of defined benefit pensions on the retirement consumption puzzle. Data from the Health and Retirement Survey shows that households with defined benefit pensions experience a significantly smaller drop in consumption spending at retirement. The difference in consumption patterns between households with defined benefit and defined contribution pensions is consistent with a drop in price of home production after retirement. Defined benefit pensions allow households to exert less effort in home production, as well as decreasing the need for precautionary savings, meaning their value is understated if home production is not accounted for. Using HRS data, we estimate the utility value of defined benefit pensions, incorporating both home production and precautionary savings. The results imply that current methods of valuing retirement income products, such as employer provided pensions and private annuities, are biased downward. The third chapter studies the purchase of annuities by retirees in Chile's privatized social security system. It is authored jointly with Gaston Illanes, of Northwestern University Department of Economics. Chile has one of the highest voluntary annuitization rates in the world, with more than 60% of retirees purchasing a private annuity. In contrast, less than 5% of US retirees purchase annuities, despite theoretical predictions that annuity value is high. Annuities in Chile are sold through a unique government-run exchange which decrease search costs and intensifies competition without imposing costs on firms. Chile also has a privatized social security system in which retirees that do not buy an annuity must take a "programmed withdrawal" of their mandated retirement savings that exposes them to more stock market risk than Social Security would. Using novel individual level administrative data and theoretical calibrations, we provide evidence that the high annuitization rate is driven by Chile's unique regulatory regime, rather than by the risk of programmed withdrawal in a privatized system. We document several features of the annuity exchange in Chile. First, annuity prices are low compared to the worldwide average. Second, annuity providers have significant market power. Third, selection exists in the market, both into purchase of annuities, and into searching for better prices. Based on these facts, we calibrate a insurance value of full annuitization compared to the privatized alternative offered by the Chilean government and compare to the value of full annuitization compared to public Social Security, such as that found in the US. The calibration suggests that privatization of social security alone cannot explain the high level of annuitization in Chile. Regulations limiting search costs can cause low prices, lower levels of adverse selection, and high brand preferences that together can explain the high annuitization rate.
Download or read book Three Essays on Financial Markets and Monetary Policy written by Conglin Xu and published by . This book was released on 2011 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The American Mortgage System written by Susan M. Wachter and published by University of Pennsylvania Press. This book was released on 2011-05-31 with total page 399 pages. Available in PDF, EPUB and Kindle. Book excerpt: Successful home ownership requires the availability of appropriate mortgage products. In the years leading up to the collapse of the housing market, home buyers frequently accepted mortgages that were not only wrong for them but catastrophic for the economy as a whole. When the housing market bubble burst, so did a cornerstone of the American dream for many families. Restoring the promise of this dream requires an unflinching inspection of lending institutions and the right tools to repair the structures that support solid home purchases. The American Mortgage System: Crisis and Reform focuses on the causes of the housing market collapse and proposes solutions to prevent another rash of foreclosures. Edited by two leaders in the field of real estate and finance, Susan M. Wachter and Marvin M. Smith, The American Mortgage System examines key elements of the mortgage meltdown. The volume's contributors address the influence of the Community Reinvestment Act, which is often blamed for the crisis. They uncover how the government-sponsored enterprises Fannie Mae and Freddie Mac invested outside the housing market with disastrous results. They present surprising information about low-income borrowers and the strengths of local banks. This collection of thoughtful studies includes extensive analysis of loan practices and the creation of unstable mortgage securities, presenting data largely unavailable until now. More than a critique, The American Mortgage System offers solutions to the problems facing the future of American home ownership, including identifying asset price bubbles, calculating risk, and preventing discrimination in lending. Measured yet timely and by turns provocative, The American Mortgage System provides a careful assessment of a troubled but indispensable part of the economic and social structure of the United States. This book is a sound investment for economists, urban planners, and all who shape public policy.
Download or read book Essays in Financial Economics written by Jason Lee and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is comprised of three essays that study topics in financial economics. The first and second chapters explore degrees of bank market power. The last chapter examines loan pricing among fintech lenders. In the first essay, I explore how to measure the degrees of bank deposit market power. Using the unique characteristics of bank deposits, I propose that bank deposit market power can be measured by the gap between insured deposit rates and risk-free rates, in which the gap represents the Lerner index for bank deposit products. With the deposit Lerner index, I examine the cross-sectional distribution of bank deposit market power using granular branch-level deposit rate data. While there is a large across-bank dispersion in market power, banks do not differentiate deposit rates across region within their own branch network. In addition, I explore why deposit market power shrinks for all banks in a low interest rate environment. In the second essay, building on the deposit Lerner index, I critically evaluate the validity of the commonly used concentration method. Out of more than five thousand banks in the U.S., the four largest banks have a combined market share of 35 percent of outstanding deposits. Yet, the way market power is typically measured implies they have less than median levels of market power. What explains this counter-intuitive result? This chapter shows that this puzzle stems from the way we commonly measure market power, which relies on the degree of local market concentration. I show that the concentration approach is critically inaccurate. On average, the concentration measure predicts market power negatively in the cross-section. Examining bank mergers also confirms that changes in local concentration have minimal impact in determining bank market power. All in all, assessing bank deposit market power can, and should, be based on the price information directly rather than from market concentration. In the third essay, coauthored with Itzhak Ben-David, Mark Johnson, and Vincent Yao, we explore fintech lenders' pricing on consumer loans. Fintech lenders are known for the use of alternative data and sophisticated technologies in delivering financial services. However, based on the pricing and performance of over two million unsecured personal fintech loans, pricing appears rather simplistic and does not necessarily correspond to default likelihoods. For instance, pricing is oversensitive to credit score bins, including a substantial interest rate jump for nonprime loans wherein borrowers just below FICO 660 pay rates that are 9.4 percentage points higher than nearly identical prime borrowers. In contrast, pricing is insensitive to known predictors of default (e.g., affordability measures and location) which effectively leads to borrower cross-subsidization. We present evidence that these pricing patterns are heavily influenced by institutional factors, such as lack of competition from banks, originators' incentives (originate-to-distribute business model) and the lack of demand for risky securities related to regulations.
Download or read book Economics of the Mortgage Market written by David Leece and published by John Wiley & Sons. This book was released on 2008-04-15 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: The analysis of the mortgage market is a specialised field but examines a financial market with extremely wide-ranging implications; it affects the stability of the whole economy. The key thing about this analysis is the increasing importance of the secondary mortgage market – which in the US is now several times larger than the market for government debt. The UK secondary mortgage market is also growing and the book will provide a timely resource to those active and interested in this important financial market. The 1990s saw an enormous growth of mortgage market analysis as an academic subject and there is a vast literature scattered among the key real estate journals. There is now a great need to not only bring this very complex subject area together, but also to abstract the main issues and to render them intelligible. The book will provide an organised research resource and also inform and motivate further research into the microeconomics of mortgage markets.
Download or read book Three Essays on Empirical Asset Pricing in International Equity Markets written by Birgit Charlotte Müller and published by Springer Gabler. This book was released on 2021-08-20 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this Open-Access-book three essays on empirical asset pricing in international equity markets are presented. Despite being of fundamental economic and scientific importance, international financial markets have remained considerably underresearched until today. In the first essay, the role of firm-specific characteristics is analyzed for the momentum effect to exist in international equity markets. The second essay investigates the validity, persistence, and robustness of the newly discovered capital share growth factor across international equity markets as proposed by Lettau et al. (2019) for the U.S. market. Lastly, the third and final essay studies stock market reactions of European vendor banks to distressed loan sale announcements.
Download or read book Three Essays on Financial Markets and Monetary Policy written by Abeba Siraj Mussa and published by . This book was released on 2011 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global financial crisis triggered by fallout form the sub-prime mortgage market in the U.S. has led economists to focus attention on the role of monetary policy in the crisis. The question of how monetary policy affects the financial sector is the key to the current debate over the role financial stability should play in the monetary policy decisions. As a contribution to this debate, my dissertation examines the link between monetary policy and three main financial sectors-the banking sector, the stock market, anf the housing market. The first essay examines whether the Federal Open Market Committee (FOMC) responded to changes in equity prices during the period 1966-2009. I distinguish the indirect response, where the FOMC reacts to equity prices only when equity prices affect its target variables, from the direct response, where the FOMC reacts to equity prices directly regardless of their effects on the target variables. In addition, the paper models the Federal Reserve's reaction function as state dependent, hypothesizing that the FOMC may respond to changes in asset prices asymmetrically during different states of the economy. The results show that the FOMC did respond directly to equity price changes when asset prices were falling. During non-bust periods, the FOMC did not respond directly to equity prices. It used information on equity prices to forecast target variables. The second essay investigates the effect of expansionary and contractionary monetary policy on the risk taking behavior of low-capital and high-capital banks. Using quarterly data on federally insured banks spanning the period from 1991 to 2010, the paper shows that expansionary policy caused high capital banks to take more risk. Capital constrained banks were not significantly affected by expansionary monetary policy. Contractionary monetary policy, however, is not effective in affecting the risk-taking behavior of both capital-constrained and unconstrained banks. The paper, therefore, confirms the hypothesis that expansionary policy is more effective in encouraging capital unconstrained banks to invest more in risky assets. The third essay examines the role of monetary policy on housing bubbles in the last three decades. A spatial dynamic model is used to explicity account for spatial cross-section dependence in the data. Using quarterly panel data on 48 contiguous U.S. states and the District of Columbia, the paper discovers that the housing bubbles across the U.S. are mainly driven by the local or state specific factors during the period 1976-2000. However, the prolonged low interest rate since the 2001 recession contributed to the run-up in house prices acrsss states.
Download or read book Essays in Macroeconomics and Financial Economics written by Edison Guozhu Yu and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays. The first essay, entitled "Dynamic Market Participation and Endogenous Information Aggregation", studies information aggregation in financial markets with recurrent investor exit and entry. The paper considers a dynamic general equilibrium model of asset trading with private information and collateral constraints. Investors differ in their aversion to Knightian uncertainty: when uncertainty is high, some investors exit the market. Since exiting investors' information is not fully revealed by prices, conditional return volatility and risk premia both increase. I use data on institutional investors' holdings of individual stocks to show that investor exit rates indeed comove with return volatility and help forecast it. The model also implies that exit is more likely when wealth is more concentrated in the hands of less uncertainty averse investors. The model thus predicts more exit toward the end of a long boom, as seen in the data. Moreover, economies with looser collateral constraints should see more volatility due to exit and partial revelation. The second essay, entitled "The (Un)importance of Mobility in the Great Recession", is based on a paper co-authored with Siddharth Kothari and Itay Saporta-Eksten. Unemployment during and after the Great Recession has been persistently high. One concern is that the housing bust reduced mobility and prevented workers from moving for jobs. The paper characterizes flows out of unemployment that are related to mobility to construct an upper bound on the effect of mobility on unemployment between 2007 and 2012. The effect of mobility is always small: Using pre-recession mobility rates, decreased mobility can account for only an 11 basis points increase in the unemployment rate over the period. Using dynamics of renter mobility in this period to calculate homeowner counterfactual mobility, can account for an 8 basis points increase. Using the highest mobility rate observed in the data, reduced mobility accounts for only a 34 basis points increase in the unemployment rate. The third essay, entitled "Long-term Bonds in a Housing Model", looks into a housing model where mortgages are modeled as a long-term bond. Most house purchases in the US are financed through a mortgage with maturity between 15 and 30 years. This essay studies house price dynamics when modeling mortgages as long-term bonds instead of the more standard one-period bond. With this new feature in the model, results show that the equilibrium price-rent ratio and mortgages borrowing are much less sensitive to changes in the interest rates. In addition, the model can generate negative equity, which matches the presence of negative equity in the housing market downturn in data.
