Strategic Default and Equity Risk Across Countries

Default Risk, Asset Pricing and Equity Premium∗

The evaluation and control of an agent‘s debt has become a major issue in economics. In this paper we focus on firms and study credit risk, debt control and asset valuation of firms. We demonstrate that firm specific credit constraints and endogenous risk premia, based on collateralized borrowing, affect the asset value of the firm and, in turn, the collateral value of the firm. In order to exp...

Aggregate Risk Sharing Across US States and Across European Countries

The paper analyzes risk sharing across US States and across European countries. The empirical literature on this subject has failed to recognize that, as long as agents can borrow and lend, risk sharing should be measured with respect to shocks to the overall level of wealth, and not to current income. The contribution of this paper is to build an appropriate empirical measure of risk sharing f...

Confidence Banking and Strategic Default

Securitization relies on confidence. As a security is tied to a particular asset (or pool of assets), in principle the investor loses when the asset defaults. The issuer of the security, however, could promise to use the proceedings from other of its assets to cover the investor in such an event. Even though the issuer is not legally bound to fulfill its promise, it may have incentives to avoid...

Financial Literacy, Social Perception and Strategic Default

As a result of sustained housing market fragility, a growing number of borrowers are walking away from their underwater homes even though they have the ability to pay. Despite recent advances, questions remain about what influences this decision. In this paper, we use survey data to examine the role of social expectations, financial literacy and knowledge of default consequences. We find that h...

Prevalence of hepatitis A across various countries in the Middle East, African and Eastern European countries