Behavioral Attributes of Strategic Default: Evidence from the Foreclosure Moratorium in Greece

47 Pages Posted: 5 Apr 2017 Last revised: 11 Feb 2019

See all articles by Nikolaos T. Artavanis

Nikolaos T. Artavanis

University of Massachusetts Amherst - Department of Finance

Ioannis Spyridopoulos

American University, Kogod School of Business

Date Written: December 18, 2018

Abstract

We exploit the introduction of a foreclosure moratorium and a new personal bankruptcy process in Greece that protect primary residences, to identify strategic defaulters. The regulation created distinct optimal strategies for strategic and non-strategic defaulters, allowing us to distinguish strategic defaults through mortgagors’ revealed preference. We show that 28% of defaults are strategic, and document considerable heterogeneity in strategic delinquencies across mortgagors. Our findings indicate prior engagement in moral hazard in the form of tax evasion, the existence of adverse liquidity shocks, and the level of financial and legal sophistication significantly contribute to strategic behavior.

Keywords: Strategic default, Foreclosure moratorium, Mortgage default, Moral hazard, Tax Evasion

JEL Classification: G21, D10, K35

Suggested Citation

Artavanis, Nikolaos T. and Spyridopoulos, Ioannis, Behavioral Attributes of Strategic Default: Evidence from the Foreclosure Moratorium in Greece (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=2946595 or http://dx.doi.org/10.2139/ssrn.2946595

Nikolaos T. Artavanis (Contact Author)

University of Massachusetts Amherst - Department of Finance ( email )

121 Presidents Drive
Amherst, MA 01003
United States

Ioannis Spyridopoulos

American University, Kogod School of Business ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

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