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The cross-section of consumer lending risk

Chintal Ajitbhai Desai

Journal of Empirical Finance, 2017, vol. 42, issue C, 256-282

Abstract: This paper tests the validity of a single-factor (market) model to price consumer lending risk. It classifies US counties into 25 portfolios based on unemployment level and the change in nominal income. The results, using serious delinquency on revolving credit as default risk, show that the intercepts are indistinguishable from zero in 22 portfolios, and the average default rate of a portfolio increases with its beta. The additional risk factors based on unemployment and income growth portfolios marginally improve the single-factor model. The results are robust to time-varying betas and personal bankruptcy as a measure of consumer lending risk.

Keywords: Consumer credit; Default; Personal Bankruptcy; Empirical Asset pricing; Household Finance (search for similar items in EconPapers)
JEL-codes: G12 G21 E51 (search for similar items in EconPapers)
Date: 2017
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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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Handle: RePEc:eee:empfin:v:42:y:2017:i:c:p:256-282