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Spatial Dependence in Subprime Mortgage Defaults

Andréas Heinen, James B. Kau (), Donald C. Keenan () and Mi Lim Kim
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James B. Kau: University of Georgia
Donald C. Keenan: Université de Cergy-Pontoise

The Journal of Real Estate Finance and Economics, 2021, vol. 62, issue 1, No 1, 24 pages

Abstract: Abstract We analyze the spatial default dependence between pairs of nonconforming securitized mortgages, originated in Los Angeles between 2000 and 2011 and clustered by zip code. Our approach allows us to estimate the range and shape of the spatial dependence function, which relates zip-code center-to-center distance between mortgages to the dependence parameter of a number of different copulas. We find significant evidence for the presence of spatial dependence, which decays to zero within 40km and can be well characterized by a squared exponential function, a special case of the Matérn spatial correlation function.

Keywords: Credit risk; Mortgage; Default; Copula; Dependence; Composite likelihood; Real estate; G21; C55; C25 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11146-019-09708-w

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The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

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