Collateralized borrowing and increasing risk
نویسندگان
چکیده
منابع مشابه
Collateralized Borrowing and Increasing Risk
This paper uses a general equilibrium model with collateralized borrowing to show that increases in risk can have ambiguous effects on leverage, loan margins, loan amounts, and asset prices. Increasing risk about future payoffs and endowments can lead to riskier loans with larger balances and lower spreads even when lenders are riskaverse and borrowers can default. As well, increasing the covar...
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Between 2000 and 2006 house prices rose more than fifty percent in real terms. Over that same period households’ mortgage and home equity debt relative to income shot up. Anecdotal and empirical evidence suggest that households accessed the equity in their homes to fund current consumption. Little if any theoretical work, however, has examined the relationship between household consumption beha...
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Simulating a realistic-sized equity premium in macroeconomic models has proved a daunting challenge, hence the “equity premium puzzle”. “Resolving” the puzzle requires heavy lifting. Precise choices of particular preferences, shocks, technologies, and hard borrowing constraints can do the trick, but haven’t stopped the search for a simpler and more robust solution. This paper suggests that soft...
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Collateralized debt obligations, which are are securities with payoffs that are tied to the cash flows in a portfolio of defaultable assets such as corporate bonds, play a significant role in the financial crisis that has spread throughout the world. Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the center of the problem. This paper develops stocha...
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Risk generated by uncertainty about future management policies appears to affect firms’ cost of borrowing. In a sample of S&P 1500 firms between 1987 and 2012, CDS spreads, loan spreads and bond yield spreads all decline over the first three years of CEO tenure, holding other macroeconomic, firm, and security level factors constant. This decline occurs regardless of the reason for the prior CEO...
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ژورنال
عنوان ژورنال: Economic Theory
سال: 2015
ISSN: 0938-2259,1432-0479
DOI: 10.1007/s00199-015-0943-2