Sarah Brown, M. Harris, Christopher Spencer, K. Taylor
Using British panel data, we explore the finding that households often expect their financial position to remain unchanged compared to other alternatives, using a gener- alised middle inflated ordered probit (GMIOP ) model. In doing so we account for the tendency of individuals to choose 'neutral' responses when faced with attitudinal and opinion-based questions, which are a common feature of survey data. Our empirical analysis strongly supports the use of a GMIOP model to account for this response pattern. Expectations indices based on competing discrete choice models are then ex- ploited to explore the role that financial expectations play in driving the consumption of different types of durable goods and the amount of expenditure undertaken. Whilst financial optimism is significantly associated with consumption, indices which fail to take into account middle-inflation are found to overestimate the impact of financial expectations.
{"title":"Financial Expectations and Household Consumption: Does Middle Inflation Matter?","authors":"Sarah Brown, M. Harris, Christopher Spencer, K. Taylor","doi":"10.2139/ssrn.3558322","DOIUrl":"https://doi.org/10.2139/ssrn.3558322","url":null,"abstract":"Using British panel data, we explore the finding that households often expect their financial position to remain unchanged compared to other alternatives, using a gener- alised middle inflated ordered probit (GMIOP ) model. In doing so we account for the tendency of individuals to choose 'neutral' responses when faced with attitudinal and opinion-based questions, which are a common feature of survey data. Our empirical analysis strongly supports the use of a GMIOP model to account for this response pattern. Expectations indices based on competing discrete choice models are then ex- ploited to explore the role that financial expectations play in driving the consumption of different types of durable goods and the amount of expenditure undertaken. Whilst financial optimism is significantly associated with consumption, indices which fail to take into account middle-inflation are found to overestimate the impact of financial expectations.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116981386","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze dynamic incentives in pension systems created by the use of a small set of final years of earnings to compute benefits. Using social security records and household surveys from Uruguay, we show that self-employed workers and some employees of small firms respond to these incentives by increasing reported earnings in the benefit calculation window. We find evidence that suggests that these responses are explained by changes in earnings reporting and not in total earnings or labor supply. Backof-the-envelope calculations indicate that this behavior increases the cost of pensions by about 0.2% of the GDP.
{"title":"Dynamic Incentives in Retirement Earnings-Replacement Benefits","authors":"Andrés Dean, Sebastián Fleitas, M. Zerpa","doi":"10.2139/ssrn.3542651","DOIUrl":"https://doi.org/10.2139/ssrn.3542651","url":null,"abstract":"\u0000 We analyze dynamic incentives in pension systems created by the use of a small set of final years of earnings to compute benefits. Using social security records and household surveys from Uruguay, we show that self-employed workers and some employees of small firms respond to these incentives by increasing reported earnings in the benefit calculation window. We find evidence that suggests that these responses are explained by changes in earnings reporting and not in total earnings or labor supply. Backof-the-envelope calculations indicate that this behavior increases the cost of pensions by about 0.2% of the GDP.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130352885","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
T. Durkin, Gregory E. Elliehausen, Thomas W. Miller
Guaranteed Asset Protection (GAP) shields purchasers from financial risks of losses exceeding insured collateral values if vehicles become total losses. Yet surprisingly little is known about the sales of this voluntary product, or consumers’ attitudes toward it. In this study, we report the results of a representative national survey conducted by the Survey Research Center (SRC) of the University of Michigan. The SRC interviewed 1,206 individuals in the fall of 2020. This survey shows consumers purchased GAP about 39 percent of financed vehicle transactions. Consumers purchase GAP more often when there is a heightened financial risk: larger credit amounts, longer loan maturities, and lower income levels. More than 90 percent of GAP purchasers report that buying GAP is a good idea and that they would buy it again. Only about 1 percent of surveyed purchasers indicate dissatisfaction with their choice. A multivariate model of GAP purchase suggests that consumers’ financial situation and terms of the transaction are more important that risk aversion by itself.
{"title":"Consumers and Guaranteed Asset Protection (“GAP Protection”) on Vehicle Loans and Sales-Financing Contracts: A First Look","authors":"T. Durkin, Gregory E. Elliehausen, Thomas W. Miller","doi":"10.2139/ssrn.3933304","DOIUrl":"https://doi.org/10.2139/ssrn.3933304","url":null,"abstract":"Guaranteed Asset Protection (GAP) shields purchasers from financial risks of losses exceeding insured collateral values if vehicles become total losses. Yet surprisingly little is known about the sales of this voluntary product, or consumers’ attitudes toward it. In this study, we report the results of a representative national survey conducted by the Survey Research Center (SRC) of the University of Michigan. The SRC interviewed 1,206 individuals in the fall of 2020. This survey shows consumers purchased GAP about 39 percent of financed vehicle transactions. Consumers purchase GAP more often when there is a heightened financial risk: larger credit amounts, longer loan maturities, and lower income levels. More than 90 percent of GAP purchasers report that buying GAP is a good idea and that they would buy it again. Only about 1 percent of surveyed purchasers indicate dissatisfaction with their choice. A multivariate model of GAP purchase suggests that consumers’ financial situation and terms of the transaction are more important that risk aversion by itself.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134000607","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies how creditors behave under costly collateral enforcement. I exploit quasi-experimental variation in foreclosure costs generated from Maine's 2014 Greenleaf judgement. I estimate that that the foreclosure rate dropped by over 23%. Furthermore, I find that borrowers did not forgo mortgage repayment when provided the opportunity to repay. Instead, the self-cure rate increased by 30%. Finally, instead of modifying mortgages or negotiating a short sale, I find that 46% of the loans that forgo foreclosure are ultimately sold off by creditors. I show that this secondary market breaks down when foreclosure costs become prohibitively expensive, at which point servicers provide forbearance to a subset of loans to prevent worsening delinquency.
{"title":"Redtape, Greenleaf: Creditor Behavior Under Costly Collateral Enforcement","authors":"Taha Ahsin","doi":"10.2139/ssrn.3928964","DOIUrl":"https://doi.org/10.2139/ssrn.3928964","url":null,"abstract":"This paper studies how creditors behave under costly collateral enforcement. I exploit quasi-experimental variation in foreclosure costs generated from Maine's 2014 Greenleaf judgement. I estimate that that the foreclosure rate dropped by over 23%. Furthermore, I find that borrowers did not forgo mortgage repayment when provided the opportunity to repay. Instead, the self-cure rate increased by 30%. Finally, instead of modifying mortgages or negotiating a short sale, I find that 46% of the loans that forgo foreclosure are ultimately sold off by creditors. I show that this secondary market breaks down when foreclosure costs become prohibitively expensive, at which point servicers provide forbearance to a subset of loans to prevent worsening delinquency.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116334942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper explores alternative forecast approaches for mortgage credit risk for forward periods of up to seven years. Using data from US prime mortgage loans from 2000 to 2016, we find that common borrower, loan contract and external features are significant in explaining credit risk over forward periods. Time variation may come through the ageing and forward channel. We develop a hybrid model for predicting default probabilities that combines both channels and outperforms standalone alternatives. This higher precision results in more accurate economic capital, IFRS 9/CECL loan loss provisioning and mortgage pricing, and hence, a more efficient and resilient resource allocation in commercial banks.
{"title":"Benchmarking Forecast Approaches for Mortgage Credit Risk for Forward Periods","authors":"T. M. Luong, Harald Scheule","doi":"10.2139/ssrn.3924049","DOIUrl":"https://doi.org/10.2139/ssrn.3924049","url":null,"abstract":"This paper explores alternative forecast approaches for mortgage credit risk for forward periods of up to seven years. Using data from US prime mortgage loans from 2000 to 2016, we find that common borrower, loan contract and external features are significant in explaining credit risk over forward periods. Time variation may come through the ageing and forward channel. We develop a hybrid model for predicting default probabilities that combines both channels and outperforms standalone alternatives. This higher precision results in more accurate economic capital, IFRS 9/CECL loan loss provisioning and mortgage pricing, and hence, a more efficient and resilient resource allocation in commercial banks.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124658751","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Police departments located in states allowing payday lending report 14.34% more property crimes than the police departments located in states not allowing payday lending. I also find that the police departments located in counties bordering with states allowing payday lending report more property crimes. Those results are driven by the financial pressure induced by payday loans. Furthermore, the impact of payday lending concentrates in areas with a higher proportion of the minority population.
{"title":"The Impact of Payday Lending on Crimes","authors":"Chen Shen","doi":"10.2139/ssrn.3831654","DOIUrl":"https://doi.org/10.2139/ssrn.3831654","url":null,"abstract":"Police departments located in states allowing payday lending report 14.34% more property crimes than the police departments located in states not allowing payday lending. I also find that the police departments located in counties bordering with states allowing payday lending report more property crimes. Those results are driven by the financial pressure induced by payday loans. Furthermore, the impact of payday lending concentrates in areas with a higher proportion of the minority population.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"96 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124808339","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Based on the China Household Finance Survey in 2017, using different measurements of FinTech, this paper finds that FinTech can promote the ratio of household risky asset holdings significantly. However, this positive effect is not financially inclusive, since it is more obvious among urban households, high-income households and households headed by younger. In terms of mechanism analysis, this paper finds that FinTech increases the ratio of household risky asset holdings through three ways: improving financial literacy, lowering the investment threshold, and promoting social interaction. Further, this paper finds that the reason why FinTech is not financial inclusive is that rural households, low-income households, and households headed by older are not good at using FinTech to improve financial literacy and lower their investment threshold. Our conclusion is still robust after using the average residential electricity consumption as the instrumental variable. This paper enriches the research on household portfolio choice and provides policy suggestions for the future promotion of financial inclusion with FinTech.
{"title":"FinTech, Financial Inclusion, and Household Portfolio Choice: Evidence from China Household Finance Survey","authors":"Lihui Tian, Hanyu Zheng, Dekai Tan","doi":"10.2139/ssrn.3909717","DOIUrl":"https://doi.org/10.2139/ssrn.3909717","url":null,"abstract":"Based on the China Household Finance Survey in 2017, using different measurements of FinTech, this paper finds that FinTech can promote the ratio of household risky asset holdings significantly. However, this positive effect is not financially inclusive, since it is more obvious among urban households, high-income households and households headed by younger. In terms of mechanism analysis, this paper finds that FinTech increases the ratio of household risky asset holdings through three ways: improving financial literacy, lowering the investment threshold, and promoting social interaction. Further, this paper finds that the reason why FinTech is not financial inclusive is that rural households, low-income households, and households headed by older are not good at using FinTech to improve financial literacy and lower their investment threshold. Our conclusion is still robust after using the average residential electricity consumption as the instrumental variable. This paper enriches the research on household portfolio choice and provides policy suggestions for the future promotion of financial inclusion with FinTech.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122601364","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper shows that perseverant behavior during college predicts default risk later in life. Using college transcripts, we find that students who voluntarily repeat courses after performing poorly are 10% less likely to default than peers who give up after comparably poor performance in the same courses at the same institutions. Conversely, students who quit courses mid-semester are more likely to default than their perseverant peers. Utilizing post-college financial distress, second differences, and proof by contradiction, we show that factors potentially confounding the observed behavior, such as students’ private information about human capital value, are unlikely to explain our results.
{"title":"College student behavior and student loan default","authors":"Jess Cornaggia, K. Cornaggia, Han Xia","doi":"10.2139/ssrn.3287952","DOIUrl":"https://doi.org/10.2139/ssrn.3287952","url":null,"abstract":"This paper shows that perseverant behavior during college predicts default risk later in life. Using college transcripts, we find that students who voluntarily repeat courses after performing poorly are 10% less likely to default than peers who give up after comparably poor performance in the same courses at the same institutions. Conversely, students who quit courses mid-semester are more likely to default than their perseverant peers. Utilizing post-college financial distress, second differences, and proof by contradiction, we show that factors potentially confounding the observed behavior, such as students’ private information about human capital value, are unlikely to explain our results.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"176 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122870937","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
New technologies have reduced trading costs for retail investors. In this paper, I examine how the corresponding surge in retail investor trade is associated with the pricing of earnings. I measure retail investor trade with the number of Robinhood users holding a firm’s shares. I find increases in these relatively inexperienced investors are associated with a more positive market response to both positive and negative earnings surprises. This manifests in a more pronounced overall market response per unit of earnings surprise for positive earnings surprises but a muted market response for negative earnings surprises. Further intraday analysis suggests that retail investors respond to stock returns following the earnings announcement instead of the earnings news itself. Finally, in smaller firms and firms that are costly to sell short, and for both the most positive and negative earnings surprises, returns drift upward following the earnings announcement when retail trade is high.
{"title":"Retail Investor Trade and the Pricing of Earnings","authors":"Jeremy Michels","doi":"10.2139/ssrn.3833565","DOIUrl":"https://doi.org/10.2139/ssrn.3833565","url":null,"abstract":"New technologies have reduced trading costs for retail investors. In this paper, I examine how the corresponding surge in retail investor trade is associated with the pricing of earnings. I measure retail investor trade with the number of Robinhood users holding a firm’s shares. I find increases in these relatively inexperienced investors are associated with a more positive market response to both positive and negative earnings surprises. This manifests in a more pronounced overall market response per unit of earnings surprise for positive earnings surprises but a muted market response for negative earnings surprises. Further intraday analysis suggests that retail investors respond to stock returns following the earnings announcement instead of the earnings news itself. Finally, in smaller firms and firms that are costly to sell short, and for both the most positive and negative earnings surprises, returns drift upward following the earnings announcement when retail trade is high.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"54 6","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120902480","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With high coupon rates, unsecured personal loans promise attractive returns to investors. However, investors also bear the risk of complete loss in the event of default. In our experience, the most successful investors rely on a deep understanding of the product and the nuances in its underwriting. While platforms typically assign credit ratings to the loans they originate, savvy investors go a step further and do their own “deep-dive” analytics. In this article, we look into the key drivers of performance in this asset class, their relative contributions, and how they interplay with other important factors.
{"title":"Unsecured Personal Loans | Drivers of Performance","authors":"Anshul Shekhon","doi":"10.2139/ssrn.3902255","DOIUrl":"https://doi.org/10.2139/ssrn.3902255","url":null,"abstract":"With high coupon rates, unsecured personal loans promise attractive returns to investors. However, investors also bear the risk of complete loss in the event of default. In our experience, the most successful investors rely on a deep understanding of the product and the nuances in its underwriting. While platforms typically assign credit ratings to the loans they originate, savvy investors go a step further and do their own “deep-dive” analytics. In this article, we look into the key drivers of performance in this asset class, their relative contributions, and how they interplay with other important factors.","PeriodicalId":428959,"journal":{"name":"Household Finance eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120936722","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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