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The Market Risk Premium for Unsecured Consumer Credit Risk

Author

Listed:
  • Matthias Fleckenstein
  • Francis A Longstaff

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.

Suggested Citation

  • Matthias Fleckenstein & Francis A Longstaff, 2022. "The Market Risk Premium for Unsecured Consumer Credit Risk," The Review of Financial Studies, Society for Financial Studies, vol. 35(10), pages 4756-4801.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:10:p:4756-4801.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac002
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    Citations

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    Cited by:

    1. Yong Zhang & Jing Zhang, 2024. "The Choice of Optimal Risk Retention Forms from the Perspective of Asymmetric Information," Mathematics, MDPI, vol. 12(22), pages 1-17, November.
    2. Matthias Fleckenstein & Francis A. Longstaff, 2023. "Small Business Equity Returns: Empirical Evidence from the Business Credit Card Securitization Market," Journal of Finance, American Finance Association, vol. 78(1), pages 389-425, February.
    3. Aifang Xin & Muqaddas Khalid & Shoaib Nisar & Iqra Riaz, 2024. "Financial Sustainability and Corporate Credit Risk: Moderating Role of Earnings Management," Sustainability, MDPI, vol. 16(13), pages 1-22, July.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G5 - Financial Economics - - Household Finance

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