A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 9 resources
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This paper investigates the relationship between securitization activity and the extension of subprime credit. The analysis is motivated by two sets of compelling empirical facts. First, the origination of subprime mortgages exploded between the years 2003 and 2005. Second, the securitization of subprime loans increased substantially over the same time period, driven primarily by the five largest independent broker/dealer investment banks. We argue that the relative shift in the securitization activity of investment banks was driven by forces exogenous to factors impacting lending decisions in the primary mortgage market and resulted in lower ZIP code denial rates, higher subprime origination rates, and higher subsequent default rates. Consistent with recent findings in the literature, we provide evidence that the increased securitization activity of investment banks reduced lenders' incentives to carefully screen borrowers.
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This paper investigates whether the securitization of corporate bank loan facilities had an impact on the price of corporate debt. Our results suggest that loan facilities that are subsequently securitized are associated with a 17 basis point lower spread than that of facilities that are not subsequently securitized. We consider facility characteristics that are associated with the likelihood of securitization and estimate the extent to which these characteristics are related to spreads. We document that Term Loan B facilities, facilities of B-rated firms, and facilities originated by banks that originate CLOs are securitized more frequently than other facilities. Spreads on facilities estimated to be more likely to be subsequently securitized have lower spreads than otherwise similar facilities. The results are consistent with the view that securitization caused a reduction in the cost of capital.
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We show that search frictions in credit markets affect accepted interest rates and loan sizes and distort consumption. Using data on car loan applications and originations not intermediated by car dealers, we isolate quasi-exogenous variation in both the costs and benefits to searching for credit. After identifying lender-specific policies that price risk discontinuously, we study the differential response to offered interest rates by borrowers who face high and low search costs. High-search-cost borrowers are 10% more likely to accept loan offers with higher markups, consequently originating smaller loans and purchasing older and less expensive cars than lower-search-cost borrowers.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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We study the link between the student credit expansion of the past 15 years and the contemporaneous rise in college tuition. To disentangle simultaneity issues, we analyze the effects of increases in federal student loan caps using detailed student-level financial data. We find a pass-through effect on tuition of changes in subsidized loan maximums of about 60 cents on the dollar and of about 20 cents on the dollar for unsubsidized federal loans. The effect is most pronounced for more expensive degrees and degrees offered by for-profit and 2-year institutions.
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We provide estimates of holdings of highly rated securitization tranches of U.S. bank holding companies before the credit crisis and evaluate hypotheses that have been advanced to explain them. Whereas holdings exceeded Tier 1 capital for some large banks, they were economically trivial for the typical bank. Banks with high holdings were not riskier before the crisis using conventional measures, but they performed poorly during the crisis. We find that holdings of highly rated tranches were correlated with a bank's securitization activity. Theories unrelated to the securitization activity, such as "bad incentives" or "bad risk management," are not supported in the data.
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Using loan‐level data on millions of used‐car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60% to 90% of the monthly payment increase. Most of this is driven by shifting toward lower‐quality cars, but affected borrowers offset 20% to 30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a car's price by 2.8%.
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This paper uses proprietary data from a leading intermediary to explain the magnitude and determinants of transaction costs in the secondary market for private equity stakes. Most transactions occur at a discount to net asset value. Buyers average an annualized public market equivalent of 1.023 compared with 0.976 for sellers, implying that buyers outperform sellers by a market-adjusted 5 percentage points annually. Both the cross-sectional pattern of transaction costs and the identity of sellers and buyers suggest that the market is one in which relatively flexible buyers earn returns by supplying liquidity to investors wishing to exit.
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We document three phenomena we jointly refer to as monthly payment targeting. First, using data from 500,000 used auto loans and discontinuities in contract terms offered by hundreds of lenders, we show that demand is more sensitive to maturity than to interest rate, consistent with consumers managing payment size when making debt decisions. Second, many consumers appear to employ segregated mental accounts, spending exogenous payment savings on larger loans. Third, consumers bunch at round number monthly payment amounts, consistent with heuristic budgeting. That these patterns hold in subsamples of likely constrained and unconstrained borrowers challenges liquidity constraints as a complete explanation.
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Measures of private equity (PE) performance based on cash flows do not account for a discount‐rate risk premium that is a component of the capital asset pricing model (CAPM) alpha. We create secondary market PE indices and find that PE discount rates vary considerably. Net asset values are too smooth because they fail to reflect variation in discount rates. Although the CAPM alpha for our index is zero, the generalized public market equivalent based on cash flows is large and positive. We obtain similar results for a set of synthetic funds that invest in small cap stocks. Ignoring variation in PE discount rates can lead to a misallocation of capital.
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