A portfolio view of consumer credit
By: David K. Musto, Nicholas S. Souleles.
Contributors: Souleles, Nicholas S.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 11735; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 11735.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Consumer credit -- Mathematical models
Description: "To compute risk-adjusted returns and gauge the volatility of their portfolios, lenders need to know the covariances of their loans' returns with aggregate returns.  Cross-sectional differences in these covariances also provide insight into the nature of the shocks hitting different types of consumers.  We use a unique panel dataset of credit bureau records to measure the 'covariance risk' of individual consumers, i.e., the covariance of their default risk with aggregate consumer default rates, and more generally to analyze the cross-sectional distribution of credit, including the effects of credit scores.  We obtain two key sets of results.  First, there is significant systematic heterogeneity in covariance risk across consumers with different characteristics.  Consumers with high covariance risk tend to also have low credit scores (high default probabilities).  Second, the amount of credit obtained by consumers significantly increases with their credit scores, and significantly decreases with their covariance risk (especially revolving credit), though the effect of covariance risk is smaller in magnitude"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 12/1/2005.

Includes bibliographical references.

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Mode of access: World Wide Web.