Finance Seminar with Daniel Paravisini, London School of Economics

On November 18, 2016 Daniel Paravisini will present "Adverse Selection on Maturity: Evidence from Online Consumer Credit"

Friday, November 18, 2016 - 11:00 to 12:15

The Department of Finance is proud to announce the upcoming seminar with Daniel Paravisini, London School of Economics.

Daniel Paravisini will present:

PDF iconAdverse Selection on Maturity: Evidence from Online Consumer Credit

Authors:
Andrew Hertzberg, Columbia University
Andres Liberman, New York University
Daniel Paravisini, London School of Economics

ABSTRACT
Longer loan maturity provides borrowers with insurance against future changes in the price of credit. The present paper examines whether, consistent with theories of insurance markets with private information, maturity choice leads to adverse selection. Our estimation compares two groups of observationally equivalent borrowers that took identical unsecured 36-month loans, only one of which had also a 60-month maturity choice available. We find that when long maturity is available, fewer borrowers take the short-term loan, and those that do, default less. Additional findings suggest borrowers self-select on private information about their future ability to repay. The findings imply that maturity can be used to screen borrowers on this private information.

The page was last edited by: Department of Finance // 11/15/2016