Agarwal, Sumit
[VerfasserIn]
;
Green, Richard K.
[Sonstige Person, Familie und Körperschaft];
Rosenblatt, Eric
[Sonstige Person, Familie und Körperschaft];
Yao, Vincent
[Sonstige Person, Familie und Körperschaft]
Collateral Pledge, Sunk-Cost Fallacy and Mortgage Default
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 2014 erstellt
Beschreibung:
Individuals and firms pledge collateral to mitigate agency costs or contracting frictions in a world with asymmetric information. However, the option value theory suggests that once the mark-to-market asset valuation is below the current debt, the firms and individuals should default on their debt contract irrespective of the initial collateral pledged. In this paper, we estimate default models and find that after controlling for mark-to-market asset valuation, initial collateral remains an important predictor of mortgage default. Specifically, individuals that pledge higher collateral have a lower hazard to default. Our results are consistent with models of sunk cost fallacy