Leverage dynamics and credit quality
| Autor: | Guillermo Ordoñez, Motohiro Yogo, David Perez-Reyna |
|---|---|
| Rok vydání: | 2019 |
| Předmět: |
Economics and Econometrics
Leverage (finance) Credit score Collateral Collateralized debt obligation media_common.quotation_subject 05 social sciences Adverse selection Monetary economics Credit history Debt 0502 economics and business Economics 050207 economics Deleveraging 050205 econometrics media_common |
| Zdroj: | Journal of Economic Theory. 183:183-212 |
| ISSN: | 0022-0531 |
| Popis: | We study a dynamic model of collateralized credit markets with asymmetric information, which allows for a rich set of signaling strategies based on the path of debt and repayment. Whether credit history reveals private information about credit quality depends on the degree of uncertainty in collateral value. When uncertainty is low, good borrowers fully and costlessly separate by deleveraging, that is borrowing a sufficiently high amount such that subsequent repayment reveals the presence of unobservable income. When uncertainty is higher, good borrowers pay an adverse selection cost through a higher interest rate because bad borrowers could default, and asymmetric information is not always resolved. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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