The cost of steering in financial markets: Evidence from the mortgage market

Luigi Guiso, Andrea Pozzi, Anton Tsoy, Leonardo Gambacorta and Paolo Emilio Mistrulli

Journal of Financial Economics, 2022, vol. 143, issue 3, 1209-1226

Abstract: We build a model of the mortgage market in which banks attain their optimal mortgage portfolio by setting rates and steering customers. Sophisticated households know which mortgage type is best for them; naive households are susceptible to banks’ steering. Using data on the universe of Italian mortgages, we estimate the model and quantify the welfare implications of steering. The average cost of the distortion is equivalent to 16% of the annual mortgage payment. A financial literacy campaign is beneficial for naive households, but hurts sophisticated ones. Since steering also conveys information about mortgages, restricting steering might result in significant welfare losses.

Keywords: Steering; Financial advice; Mortgage market; Consumer protection (search for similar items in EconPapers)
JEL-codes: D12 D18 G21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X21001951
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Cost of Steering in Financial Markets: Evidence from the Mortgage Market (2019)
Working Paper: The cost of steering in financial markets: evidence from the mortgage market (2019)
Working Paper: The Cost of Steering in Financial Markets: Evidence from the Mortgage Market (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:3:p:1209-1226

DOI: 10.1016/j.jfineco.2021.05.013

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().