On the Convergence of Credit Risk in Current Consumer Automobile Loans
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arXiv
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| Auteurs principaux: | , , |
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| Format: | Preprint |
| Publié: |
2022
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| _version_ | 1866913622151659520 |
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| author | Lautier, Jackson P. Pozdnyakov, Vladimir Yan, Jun |
| author_facet | Lautier, Jackson P. Pozdnyakov, Vladimir Yan, Jun |
| contents | Loan seasoning and inefficient consumer interest rate refinance behavior are well-known for mortgages. Consumer automobile loans, which are collateralized loans on a rapidly depreciating asset, have attracted less attention, however. We derive a novel large-sample statistical hypothesis test suitable for loans sampled from asset-backed securities to populate a transition matrix between risk bands. We find all current risk bands eventually converge to a super-prime credit, despite remaining underwater. Economically, our results imply borrowers forwent \$1,153-\$2,327 in potential credit-based savings through delayed prepayment. We present an expected present value analysis to derive lender risk-adjusted profitability. Our results appear robust to COVID-19. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2211_09176 |
| institution | arXiv |
| publishDate | 2022 |
| record_format | arxiv |
| spellingShingle | On the Convergence of Credit Risk in Current Consumer Automobile Loans Lautier, Jackson P. Pozdnyakov, Vladimir Yan, Jun Statistical Finance General Economics Economics General Finance Loan seasoning and inefficient consumer interest rate refinance behavior are well-known for mortgages. Consumer automobile loans, which are collateralized loans on a rapidly depreciating asset, have attracted less attention, however. We derive a novel large-sample statistical hypothesis test suitable for loans sampled from asset-backed securities to populate a transition matrix between risk bands. We find all current risk bands eventually converge to a super-prime credit, despite remaining underwater. Economically, our results imply borrowers forwent \$1,153-\$2,327 in potential credit-based savings through delayed prepayment. We present an expected present value analysis to derive lender risk-adjusted profitability. Our results appear robust to COVID-19. |
| title | On the Convergence of Credit Risk in Current Consumer Automobile Loans |
| topic | Statistical Finance General Economics Economics General Finance |
| url | https://arxiv.org/abs/2211.09176 |