An Empirical Analysis of Information Asymmetry in Home Equity Lending

Sumit Agarwal (), Souphala Chomsisengphet () and Chunlin Liu ()

Journal of Financial Services Research, 2016, vol. 49, issue 1, 119 pages

Abstract: We analyze more than 74,000 home equity loans and lines of credit to study the role of information asymmetry. This credit market is characterized by borrowers who face a menu of contract options with varying collateral requirements and prices. Our results show that a less credit worthy applicant is more likely to select a credit contract that requires less collateral. Further analysis on the borrower’s repayment behavior after controlling for observable risk attributes indicates that the lender faces adverse selection and moral hazard due to private information. Copyright Springer Science+Business Media New York 2016

Keywords: Asymmetric information; Adverse selection; Moral hazard; Banking; Home equity lending; D1; D8; G21 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s10693-015-0216-z (text/html)
Access to full text is restricted to subscribers.

Related works:
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:kap:jfsres:v:49:y:2016:i:1:p:101-119

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10693

DOI: 10.1007/s10693-015-0216-z

Access Statistics for this article

Journal of Financial Services Research is currently edited by Haluk Unal

More articles in Journal of Financial Services Research from Springer, Western Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().