We exploit a quasi-natural experiment in the peer-to-peer lending market to show that the mechanism determining interest rates, irrespective of their levels, influences households' decisions to participate in credit markets. A large online platform unexpectedly switched from auction pricing of loans to centralized price assignment by credit grade. After the change all borrowers in a given credit grade were assigned the same interest rate, potentially exacerbating asymmetric information between borrowers and lenders. Surprisingly, we find that the creditworthiness of borrowers listing on the platform improves. This effect is mainly driven by lower quality borrowers leaving the platform, and is most pronounced for households looking to consolidate existing debt. As a result, less credit is allocated to lower credit quality borrowers. Our findings suggest that the manner in which interest rates are set is an important determinant of households' financing decisions and of selection into credit markets.
{"title":"Selection into Informative Consumer Credit Markets","authors":"I. Liskovich, Maya Shaton","doi":"10.2139/ssrn.2879040","DOIUrl":"https://doi.org/10.2139/ssrn.2879040","url":null,"abstract":"We exploit a quasi-natural experiment in the peer-to-peer lending market to show that the mechanism determining interest rates, irrespective of their levels, influences households' decisions to participate in credit markets. A large online platform unexpectedly switched from auction pricing of loans to centralized price assignment by credit grade. After the change all borrowers in a given credit grade were assigned the same interest rate, potentially exacerbating asymmetric information between borrowers and lenders. Surprisingly, we find that the creditworthiness of borrowers listing on the platform improves. This effect is mainly driven by lower quality borrowers leaving the platform, and is most pronounced for households looking to consolidate existing debt. As a result, less credit is allocated to lower credit quality borrowers. Our findings suggest that the manner in which interest rates are set is an important determinant of households' financing decisions and of selection into credit markets.","PeriodicalId":433769,"journal":{"name":"Fourth Annual Conference on Financial Market Regulation (Archive)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124382362","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}
Antonio Falato, Ali Hortaçsu, Dan Li, Chaehee Shin
We assess fire-sale spillovers empirically using a new approach to measure network linkages across financial institutions and rich micro data for the universe of open-end fixed-income mutual funds. We find evidence that flows are interdependent across funds with asset class overlap, consistent with the hypothesis that one fund's redemptions may spill-over on to those of other funds by leading to distressed sales that adversely impact other funds' performance. We use several strategies to identify the causal link between any given fund's flows and those of its peers, including a regression discontinuity (RD) design that exploits sharp changes in peer flows around Morningstar 5-star ratings. The source of identification of our RD approach is quasi-random variation in peer flows around the arbitrary performance cutoffs used by Morningstar to assign their 5-star ratings, which is plausibly unrelated to changes in common industry fundamentals. Consistent with a fire-sale mechanism, not just fund flows, but also fund performance and liquidity, as well as the pricing of corporate bonds sold by funds under peer pressure, are adversely affected. Our approach yields simple measures of vulnerability of a fund family to system-wide flow pressures, which can be used for policy evaluation of alternative financial stability tools.
{"title":"Fire-Sale Spillovers in Debt Markets","authors":"Antonio Falato, Ali Hortaçsu, Dan Li, Chaehee Shin","doi":"10.2139/ssrn.2887822","DOIUrl":"https://doi.org/10.2139/ssrn.2887822","url":null,"abstract":"We assess fire-sale spillovers empirically using a new approach to measure network linkages across financial institutions and rich micro data for the universe of open-end fixed-income mutual funds. We find evidence that flows are interdependent across funds with asset class overlap, consistent with the hypothesis that one fund's redemptions may spill-over on to those of other funds by leading to distressed sales that adversely impact other funds' performance. We use several strategies to identify the causal link between any given fund's flows and those of its peers, including a regression discontinuity (RD) design that exploits sharp changes in peer flows around Morningstar 5-star ratings. The source of identification of our RD approach is quasi-random variation in peer flows around the arbitrary performance cutoffs used by Morningstar to assign their 5-star ratings, which is plausibly unrelated to changes in common industry fundamentals. Consistent with a fire-sale mechanism, not just fund flows, but also fund performance and liquidity, as well as the pricing of corporate bonds sold by funds under peer pressure, are adversely affected. Our approach yields simple measures of vulnerability of a fund family to system-wide flow pressures, which can be used for policy evaluation of alternative financial stability tools.","PeriodicalId":433769,"journal":{"name":"Fourth Annual Conference on Financial Market Regulation (Archive)","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123874582","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}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：