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Measuring the covariance risk of consumer debt portfolios

Carlos Madeira ()

Journal of Economic Dynamics and Control, 2019, vol. 104, issue C, 21-38

Abstract: The covariance risk of consumer loans is difficult to measure due to high heterogeneity. Using the Chilean Household Finance Survey I simulate the default conditions of heterogeneous households over distinct macro scenarios. I show that consumer loans have a high covariance beta relative to the stock market and bank assets. Banks’ loan portfolios have very different covariance betas, with some banks being prone to high risk during recessions. High income and older households have lower betas and help diversify banks’ portfolios. Households’ covariance risk increases the probability of being rejected for credit and has a negative impact on loan amounts.

Keywords: Consumer credit; Default risk; Business cycle fluctuations (search for similar items in EconPapers)
JEL-codes: E21 E24 E32 E51 G01 G21 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Measuring the Covariance Risk of Consumer Debt Portfolios (2019) Downloads
Working Paper: Measuring the Covariance Risk of Consumer Debt Portfolios (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:104:y:2019:i:c:p:21-38

DOI: 10.1016/j.jedc.2019.05.005

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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