Modeling Spatially Interdependent Mortgage Decisions

43 Pages Posted: 19 Sep 2011 Last revised: 29 Feb 2012

See all articles by Shuang Zhu

Shuang Zhu

Kansas State University - Department of Finance

R. Kelley Pace

Louisiana State University - E.J. Ourso College of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2011

Abstract

House prices regression residuals often display spatial dependence, but historically mortgage models (which employ house prices) assume independence and use only the own borrower/loan characteristics. This manuscript uses a spatial probit model to investigate spatial dependence among the disturbances and the effect of borrower/loan characteristics from nearby properties on payment default. We find that spatial dependence in the disturbances has a large effect on model fit and that spillovers from risky mortgage characteristics have statistically significant and material effects on own payment default.

Keywords: mortgage, mortgage default, spatial probit, spillover, interdependent disturbances

Suggested Citation

Zhu, Shuang and Pace, R. Kelley, Modeling Spatially Interdependent Mortgage Decisions (September 16, 2011). Midwest Finance Association 2012 Annual Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1929171 or http://dx.doi.org/10.2139/ssrn.1929171

Shuang Zhu (Contact Author)

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

R. Kelley Pace

Louisiana State University - E.J. Ourso College of Business Administration ( email )

Department of Finance
2164 B Patrick F. Taylor Hall
Baton Rouge, LA 70803-6308
United States
(225)-578-6256 (Phone)
(225)-578-9065 (Fax)

HOME PAGE: http://www.spatial-statistics.com

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