Abstract
We present an empirical study of stress testing for portfolios of auto loans. We find that loans aged five years or more have significantly higher default probabilities. This finding raises concerns about the increasing maturity of auto loans in recent years. A challenge in stress testing is the instability of the estimated coefficient of macroeconomic variables, which raises questions on the reliability of stress test results. For this reason, it is important for model developers to perform sensitivity analyses and make conservative adjustment to minimize model risk.
Original language | English (US) |
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Pages (from-to) | 79-89 |
Number of pages | 11 |
Journal | Journal of Financial Stability |
Volume | 39 |
DOIs | |
State | Published - Dec 2018 |
All Science Journal Classification (ASJC) codes
- General Economics, Econometrics and Finance
- Finance
Keywords
- Auto loan defaults
- Loan age
- Macroeconomic variables
- Model instability
- Stress testing
- Used car prices