The Market Risk Premium for Unsecured Consumer Credit Risk

Matthias Fleckenstein and Francis A Longstaff

The Review of Financial Studies, 2022, vol. 35, issue 10, 4756-4801

Abstract: We use the prices of credit card asset-backed securities to study the market risk premium associated with unsecured consumer credit risk. We find that the market incorporates a substantial credit risk premium into the prices of these securities. Furthermore, there has been a major repricing of unsecured consumer credit risk since the 2007–2009 financial crisis. We find evidence that this increase is linked to balance-sheet costs imposed by postcrisis changes in regulations that have placed credit card securitizations back onto issuer balance sheets. These regulatory changes may have added more than 100 basis points to the cost of unsecured household credit.

JEL-codes: G12 G13 G21 G5 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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