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- W1496283719 abstract "We present a model of the subprime market in which credit quality and loan performance are driven by a statistical process with idiosyncratic and aggregate shocks. Investors use portfolio performance to infer the weight of each shock. We show that low and stable default rates from 2002-2005 convinced investors that the aggregate shock weight was small. In late 2006, when default rates surged, the market collapsed abruptly as investors abandoned their low-weight beliefs. We examine various proposals to fix the mortgage market and find that policy intervention has limited effectiveness in our model." @default.
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- W1496283719 date "2008-01-01" @default.
- W1496283719 modified "2023-09-27" @default.
- W1496283719 title "The Subprime Mortgage Crisis: Irrational Exuberance or Rational Error?" @default.
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