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Markov-switching impacts of housing-market expectations on credit markets

Published on Dec 3, 2019in Managerial Finance
路 DOI :10.1108/MF-08-2019-0391
Abstract
  • References (37)
  • Citations (0)
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References37
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Borrowers with a pair of mortgages collateralized by the same property sometimes continue to make payments on one while defaulting on the other. We articulate a framework for understanding this performance mismatch that emphasizes two types of borrowers: those with stable equity positions who perceive they are facing moderate or temporary liquidity shocks, and those facing severe financial stress in combination with negative equity. The former have an incentive to enter mismatch and subsequently...
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#1Roberto G. Quercia (UNC: University of North Carolina at Chapel Hill)H-Index: 23
#2Anthony Pennington-Cross (Marquette University)H-Index: 18
Last. Chao Yue Tian (UNC: University of North Carolina at Chapel Hill)H-Index: 4
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The Great Recession (the fourth quarter of 2007 through the second quarter of 2009) has been characterized by high rates of foreclosures and unemployment. Using a sample of community reinvestment loans, we examine the impact of structural unemployment and cyclical unemployment on mortgage terminations (default and prepayment). We find that mortgage default and prepayment are more sensitive to changes in the structural component of the local unemployment rate than in the cyclical component. In ad...
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#1R. Kelley Pace (LSU: Louisiana State University)H-Index: 29
#2Shuang Zhu (KSU: Kansas State University)H-Index: 7
Existing price indices are based on real estate sales. This approach encounters problems when (1) sales are infrequent or (2) when these differ systematically from the overall market (selection bias). Relative to the number of properties sold on the market, a much greater number of properties have borrowers who need to make monthly mortgage payment decisions. Therefore, each month borrowers cast a vote of confidence or no confidence in their price relative to the loan balance. Based on this beha...
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#1MeiChi Huang (NTPU: National Taipei University)H-Index: 1
#2LinYing Yeh (YZU: Yuan Ze University)H-Index: 1
The paper provides fresh implications for monetary-policy timings and effectiveness by analyzing the roles of asymmetric transitory shocks in housing, real estate investment trust (REIT), and stock price returns under the asymmetric unobserved components framework. The findings show that asymmetric transitory shocks, which characterize Markov-switching low-growth regimes of asset markets, are evidently significant for all asset price returns given the exogenous nature. Noticeably, the year 2005 ...
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#1Carl Chiarella (UTS: University of Technology, Sydney)H-Index: 35
#2Saskia ter Ellen (Norges Bank)H-Index: 1
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This paper proposes a model for credit default swap (CDS) spreads under heterogeneous expectations to explain the escalation in sovereign European CDS spreads and the widening variations across European sovereigns following the Global Financial Crisis (GFC). In our model, investors believe that sovereign CDS spreads are determined by country-specific fundamentals and momentum. By estimating the model we find evidence that, while some of the recent movements in sovereign CDS spreads can be explai...
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#1Shuang Zhu (KSU: Kansas State University)H-Index: 7
#2R. Kelley Pace (LSU: Louisiana State University)H-Index: 29
Last. Walter A. MoralesH-Index: 1
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Expectations of housing prices play an important role in real estate research. Despite their importance, obtaining a reasonable proxy for such expectations is a challenge. The existing literature on mortgage research either does not include housing expectation proxies in empirical models, or uses 鈥渂ackward-looking鈥 proxies such as past housing appreciation or time series forecasts based on past housing appreciation. This paper proposes to use the transaction prices of Case-Shiller housing future...
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#1Michael D. Eriksen (UGA: University of Georgia)H-Index: 9
#2James B. Kau (UGA: University of Georgia)H-Index: 29
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This paper investigates how an important driver of the recent housing boom and bust, people鈥檚 expectation, influences housing asset returns. Specifically, it extends the volatility feedback model to study the relationship between housing volatility and asset returns during 19632007. The analysis considers two alternative breakpoints, 1984Q1 and 1999Q1, in order to distinguish the permanent structural break from temporary Markov-switching volatility. The novelty of this study lies in its insightf...
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#1Michael J. Seiler (ODU: Old Dominion University)H-Index: 19
#2Vicky L. Seiler (Johns Hopkins University)H-Index: 9
Last. David M. Harrison (TTU: Texas Tech University)H-Index: 13
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This study examines underwater primary resident homeowners to identify why some decide to strategically default while others do not. We find that realized shame and guilt are consistent with ex ante expectations. However, the financial backlash experienced by strategic defaulters is less than anticipated, causing strategic defaulters not to regret their actions. State鈥恠pecific bankruptcy exemption levels and real estate laws only marginally explain the decision to strategically default, partly b...
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#1Michael Devaney (SEMO: Southeast Missouri State University)H-Index: 8
From September 19 through October 8, 2008 the SEC issued a short sale moratorium on approximately 800 financial stocks. The emergency order justified the ban based on concerns 鈥渢hat short selling in the securities of a wide range of financial institutions may be causing sudden and excessive fluctuations in the prices of such securities鈥 (see Securities and Exchange Commission, 2008). Although Real Estate Investment Trusts (REITs) were initially excluded, the management of fourteen REITs requeste...
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