Does Collateral Value Affect Asset Prices? Evidence from a Natural Experiment in Texas

@article{Zevelev2020DoesCV,
  title={Does Collateral Value Affect Asset Prices? Evidence from a Natural Experiment in Texas},
  author={Albert Alex Zevelev},
  journal={Pension Risk Management eJournal},
  year={2020}
}
  • A. Zevelev
  • Published 10 June 2020
  • Economics
  • Pension Risk Management eJournal
Does the ability to pledge an asset as collateral, after purchase, affect its price? This paper identifies the impact of collateral service flows on house prices, exploiting a plausibly exogenous constitutional amendment in Texas that legalized home equity loans in 1998. The law change increased Texas house prices 4 $\%$; this is price-based evidence that households are credit-constrained and value home equity loans to facilitate consumption smoothing. Prices rose more in locations with… 

The Capitalization of Consumer Financing into Durable Goods Prices

A central question in the study of business cycles and credit is the relationship between asset prices and borrowing conditions. In this paper, we investigate the effects of cross-sectional

Liquidity Constraints in the U.S. Housing Market

We study the severity of liquidity constraints in the U.S. housing market using a life-cycle model with uninsurable idiosyncratic risks in which houses are illiquid, but agents can extract home

Do Foreign Buyer Taxes Affect House Prices?

This paper studies the impact of foreign buyer taxes on house prices using recent law changes in Canada, Australia, and New Zealand. Counterfactual house prices are estimated for each treated

Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets

We provide causal evidence for the value of asset pledgeability. Our empirical strategy is based on a unique feature of the Chinese corporate bond markets, where bonds with identical fundamentals are

The Cost of Consumer Collateral: Evidence from Bunching

We show that borrowers are highly sensitive to the requirement of posting their homes as collateral. Using administrative loan application and performance data from the U.S. Federal Disaster Loan

Labor Market Effects of Credit Constraints: Evidence from a Natural Experiment Anil Kumar* Federal Reserve Bank of Dallas

We exploit the 1998 and 2003 constitutional amendment in Texas—allowing home equity loans and lines of credit for non-housing purposes—as natural experiments to estimate the effect of easier credit

Labor Market Effects of Credit Constraints: Evidence from a Natural Experiment

We exploit the 1998 and 2003 constitutional amendment in Texas?allowing home equity loans and lines of credit for non-housing purposes?as natural experiments to estimate the effect of easier credit

Home Equity Lending, Credit Constraints and Small Business in the US

We use Texas's constitutional amendment in 1997 that expanded the scope of home equity loans as a source of exogenous variation to estimate the effects of relaxing credit constraints on small

Collateral Quality and House Prices†

  • Jing Zhou
  • Economics
    SSRN Electronic Journal
  • 2022
This paper studies the effects of shifts in collateral quality on house prices and the macroeconomy in a dynamic general equilibrium model with credit and housing collateral. Depending on whether

References

SHOWING 1-10 OF 112 REFERENCES

Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas

We estimate how spending in Texas responded to a 1997 constitutional amendment that relaxed severe restrictions on home equity lending. We use this event as a natural experiment to estimate the

Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perspective

In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the

Collateral Requirements and Asset Prices

Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral value and its impact on asset returns

Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption

Applying a permanent income model with exogenous liquidity constraints and mortgage behavior, household refinancing when mortgage interest rates are historically high and rising, a persistent

Credit Expansion, Competition, and House Prices

We document the effect of policy-induced credit supply on fueling asset prices that lead to financial crises and broad economic outcomes. By comparing loans that fall under the current conforming

The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral

Do Restrictions on Home Equity Extraction Contribute to Lower Mortgage Defaults? Evidence from a Policy Discontinuity at the Texas Border

Texas is the only US state that limits home equity borrowing to 80 percent of home value. This paper exploits this policy discontinuity around the Texas’ interstate borders and uses a

House prices, borrowing constraints and monetary policy in the business cycle

I develop and estimate a monetary business cycle model with nominal loans and collateral constraints tied to housing values. Demand shocks move housing and nominal prices in the same direction, and

The Capitalization of Consumer Financing into Durable Goods Prices

A central question in the study of business cycles and credit is the relationship between asset prices and borrowing conditions. In this paper, we investigate the effects of cross-sectional

Cheap Credit, Affordable Housing? Evidence from the French Interest-Free Loan Policy

We use exogenous shifts in credit to assess how credit conditions affect borrowers’ characteristics and house prices. We identify credit supply shifts using within ZIP-code variations in the
...