Adverse Selection and Climate Risk: A Response to Ouazad and Kahn (2022)

Michael LaCour-Little, Andrey Pavlov and Susan Wachter

The Review of Financial Studies, 2024, vol. 37, issue 6, 1831-1847

Abstract: We identify two issues in the work of Ouazad and Kahn (2022). Correcting either reverses the original result. The two changes are to use the correct FHFA conforming loan limits for each county and year and to compare the individual loan amount to that limit correctly. There is no evidence that lenders transfer climate risk by altering loan origination and securitization behavior. None of our results calls into question the value and importance of the O&K model as a test for adverse selection. The question addressed and the setup of the test are important and should be replicated over time.

Keywords: G21; G28; R33 (search for similar items in EconPapers)
Date: 2024
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