University of Pennsylvania
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NBER Working Papers and Publications
|November 2005||A Portfolio View of Consumer Credit|
with Nicholas S. Souleles: w11735
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 ri...
Published: Musto, David K. and Nicholas S. Souleles. "A Portfolio View Of Consumer Credit," Journal of Monetary Economics, 2006, v53(1,Jan), 59-84. citation courtesy of