Does Collateral Value Affect Asset Prices? Evidence from a Natural Experiment in Texas
General Economics
2021-02-08 v1 Economics
Abstract
Does the ability to pledge an asset as collateral, after purchase, affect its price? This paper identifies the impact of collateral service flows on house prices, exploiting a plausibly exogenous constitutional amendment in Texas which legalized home equity loans in 1998. The law change increased Texas house prices 4%; this is price-based evidence that households are credit-constrained and value home equity loans to facilitate consumption smoothing. Prices rose more in locations with inelastic supply, higher pre-law house prices, higher income, and lower unemployment. These estimates reveal that richer households value the option to pledge their home as collateral more strongly.
Cite
@article{arxiv.2102.02935,
title = {Does Collateral Value Affect Asset Prices? Evidence from a Natural Experiment in Texas},
author = {Albert Alex Zevelev},
journal= {arXiv preprint arXiv:2102.02935},
year = {2021}
}