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- Title
Does Collateral Value Affect Asset Prices? Evidence from a Natural Experiment in Texas.
- Authors
Zevelev, Albert Alex
- 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 that 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 prelaw house prices, higher income, and lower unemployment. These estimates reveal that richer households value the option to pledge their home as collateral more strongly.
- Subjects
COLLATERAL security; ASSETS (Accounting); HOME prices; HOME equity loans; INCOME; UNEMPLOYMENT; HOUSEHOLDS &; economics
- Publication
Review of Financial Studies, 2021, Vol 34, Issue 9, p4373
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhaa117