The Subprime Virus

Sumit Agarwal, Brent W. Ambrose, Yildiray Yildirim

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

We examine the correlation between prime mortgage default risk and the introduction of subprime mortgages in a local area. We motivate our analysis with a model of a default contagion effect that spreads the effect of a mortgage foreclosure from one property to surrounding properties. Through numerical analysis, we demonstrate the effect of subprime mortgage originations to the risk of prime mortgages. Finally, we offer empirical support for our model by examining the spatial variation in MSA prime mortgage default rates and the level of subprime mortgage activity.

Original languageEnglish (US)
Pages (from-to)891-915
Number of pages25
JournalReal Estate Economics
Volume43
Issue number4
DOIs
StatePublished - Dec 1 2015

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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