Maturity Choice and Reference Points

40 Pages Posted: 28 May 2019 Last revised: 10 Feb 2020

See all articles by Moritz Lukas

Moritz Lukas

University of Hamburg

Markus Noeth

University of Hamburg

Date Written: April 30, 2019

Abstract

This paper shows how retail borrowers' focus on recent interest rates as reference points may lead to maturity choices which are inconsistent with normative predictions. A laboratory experiment reveals that borrowers prefer longer maturities when interest rates have fallen and shorter maturities when interest rates have risen. Normative drivers of maturity choice related to borrower characteristics, loan attributes, and pricing variables cannot explain these patterns of maturity choice. Market data from a mortgage broker confirms our findings in a context in which sound financial decisions are of prime importance for households' financial well-being.

Keywords: Credit, Mortgages, Banking, Behavioral Finance, Maturity Choice

JEL Classification: G21, D12, D14, C91

Suggested Citation

Lukas, Moritz and Noeth, Markus, Maturity Choice and Reference Points (April 30, 2019). Available at SSRN: https://ssrn.com/abstract=3380125 or http://dx.doi.org/10.2139/ssrn.3380125

Moritz Lukas (Contact Author)

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Markus Noeth

University of Hamburg ( email )

Chair of Banking and Behavioral Finance
WiSo
Hamburg, 20146
Germany
+49-40-42838 3337 (Phone)
+49-40-42838 5512 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
19
Abstract Views
383
PlumX Metrics