This dissertation contains three essays in Development Economics. The first two chapters relate to the provision of credit for agricultural production in a developing country. The third chapter explores methodological issues in the measurement of risk aversion using laboratory experiments. Risk aversion has been suggested as a theoretical explanation for credit constraints in agricultural settings in developing countries. Better measures of risk aversion can be used to empirically validate these theories. In Chapter 1 of this dissertation, I study the consequences of the use of credit scoring systems for agricultural lending in developing countries. Credit scoring has become a widespread tool to assess the creditworthiness of prospective borrowers, and has been found to increase efficiency and welfare in many settings. This chapter identifies a shortcoming in existing credit scoring systems that may lead to a market failure in agricultural lending in developing countries: Farmers' scores -- and their access to credit -- decline because of exogenous short-term weather shocks that do not reduce their likelihood of future repayment. I use data on the near universe of formal agricultural loans for coffee production in Colombia to show that excess rainfall shocks cause lower concurrent loan repayment, lower credit scores, and more frequent denial of subsequent loan applications. Then, I draw on the agronomic literature on coffee production and use survey data to show that productivity, income and repayment behavior recover faster from these shocks than farmers' credit histories. In the chapter I argue that these additional loan denials create costs for both farmers and the lender that could be avoided. The results presented in this chapter suggest that incorporating verifiable information on individual level shocks into credit scores would increase the efficiency of credit markets. In Chapter 2, together with Jairo Esquivel, Margarita Gáfaro, Guillermo Otero and Moisés Mahecha, I study the determinants of repayment of loans to a public development bank. In particular, we investigate whether the public nature of a lender affects the repayment behavior of its borrowers. We conducted a field experiment where customers who receive reminder phone calls before a payment installment of loans were randomly assigned to different phone call scripts. The loans are from a public agricultural bank in Colombia. In our main treatment, we include a sentence to remind the customer of the public nature of the lender. We find strong and positive effects on repayment performance: farmers in this treatment have probabilities of ever being overdue and of entering into a period of 30 days past due that are respectively 10\% and 22\% lower than those of farmers treated with the traditional script. We interpret this finding as evidence that farmers are more like to repay their loans because of the public nature of the bank. Results from heterogeneity exercises show that some measures of state presence increase the magnitude of the effect of the public treatment, which suggests that state deterrence is a potential mechanism behind our findings. Furthermore, results from treatments where sentiments of altruism and peer pressure are induced by the script suggest that these motives explain part of the effect that the public nature of the lender has on repayment. In Chapter 3, together with Juan Camilo Cárdenas, Christian Jaramillo and Luis Roberto Martínez, I address a methodological concern common in laboratory experiments. The house-money effect, understood as a person's tendency to be more daring with easily-gotten money, is a behavioral pattern that poses questions about the external validity of experiments in economics. We ran an economic experiment with 122 students, who received an amount of money with which they made risky decisions involving losses and gains; a randomly selected treatment group received the money 21 days in advance and a control group got it the day of the experiment. With our preferred specification, we find a mean CRRA risk aversion coefficient of 0.34, with a standard deviation of 0.09. Furthermore, if subjects in the treatment group spent 35\% of the endowment (as they did, on average) their CRRA risk aversion coefficient is higher than that of the control group by approximately 0.3 standard deviations. We interpret this result as evidence of a small and indirect house money effect operating though the amount of the cash in advance that was actually spent. We conclude in this chapter that the house money effect may play a small role in decisions under uncertainty, especially when involving losses.

Subject of my thesis is a credit risk in the czech banking environment. It consists of five chapters. First one contains description of basic risks banks are exposed to. The next one addresses the credit risk itself and its management, including determination of credit policy and the process of credit granting. Related to this topic is hedging, in broader sense also including provisioning and reserves creation. Third chapter is about credit derivatives, via which the credit risk can be reduced. Closely related to this topic is a securitisation process and it's products. Fourth chapter deals with regulation, which is an essential part of the banking sector nowadays. I focus primarily on Basel II and its credit risk part. In the final chapter I describe credit risk management of one of the biggest czech banks, Ceska sporitelna, which granted most credits in 2010.

This thesis is devoted to UK Mortgage Performance Modelling. The research conducted uses an option pricing methodology to model theoretically the value of Mortgages, the Option to default and the probability to default and to compare the predictive accuracy of the latter with the predictive accuracy of data driven credit-scoring techniques. Theoretical models are constructed to represent the life cycles of loans collateralised by real property operating within a stochastic economic environment of house-price and interest rate. These realistic mortgage models provide a confirmation of recent research based upon a relaxation of the assumption of financially rational, 'ruthless' prepayment, bridge a potential oversight in existing research by an extension of existing modelling in the stochastic behaviour of the house price process and present a proposal for a straightforward approach utilising characteristic measures of borrower delinquency and insolvency that enables estimation of the default probabilities implicit in residential mortgages using a simple but enhanced optimising structural model. This model straightforwardly demonstrates that one can predict the probability of eventual default, beginning at the origination of the loan, the time when a lender would be most interested in making such a determination. Secondly the problem of mortgage loan default risk is empirically assessed in a number of different ways focusing upon analysis of the competing risks of early termination, the inclusion of macro-economic variables - time varying covariates and unobserved borrower heterogeneity. Key insight is provided by means of a multi-period model exploiting the potential of the survival analysis approach when both loan survival times and the various regressors are measured at discrete points in time. The discrete-time hazard model is used as an empirical framework for analysing the deterioration process leading to loan default and as a tool for prediction of the same event. Results show that the prediction accuracy of the duration model is better than that provided by a single period logistic model. The predictive power of the discrete time survival analysis is enhanced when it is extended to allow for unobserved individual heterogeneity (frailty).

Defaulted retail mortgage loans as a percentage of retail mortgage loans and advances averaged 9 percent over 2010 as reported in the SARB Bank Supervision Annual report. Banks are in the business of risk taking and as a result need to constantly evaluate and review credit risk management to attain sustained profitability. In credit risk modelling, default risk is associated with client-specific factors particularly the client’s credit rating. However, Brent, Kelly, Lindsey-Taliefero, and Price (2011), have shown that variation in mortgage delinquencies reflect changes in general macroeconomic conditions. This study aims to provide evidence of whether macroeconomic factors such as the house price index, CPI, credit growth, debt to income ratio, prime interest rates, and unemployment, are key drivers of residential mortgage delinquencies and default in South Africa. In this study, data from an undisclosed bank is used to estimate three models that are supposed to capture the influence of several macroeconomic variables on 30 day, 60 day, and 90 day delinquency rates over the 2006-2010 period. In order to eliminate the potential bias introduced by those observations, a fourth model was estimated using aggregated banking industry published by the SARB. However, due to data constraints, only the severe mortgage delinquency state, that is the 90 day delinquency rate was modelled using this aggregate data. The SARB sample covers the period between 2008 and 2010. The choice of the date 2008 coincides with the introduction of the Basel 2 regulatory framework. Prior to 2008, the big four South African banks were governed by the Basel 1 framework, and measured their credit risk using the so-called Standardised Approach which has different loan categories and different default definitions compared to the Basel 2 Advanced Internal Ratings Approach adopted in 2008. The findings suggest that the two samples (i.e. the data from the individual bank and the SARB data) imply different explanatory macroeconomic factors. Prime interest rates were found to be the only important variable in determining 30 day and 60 day delinquency rates for the individual bank. The house price index, CPI, credit growth, and prime interest rates were found to be the main determinants of the 90 day delinquency rates for the undisclosed bank, while the house price index, CPI, and credit growth, determine the 90 day delinquency rates for the big four banks.

Issuers’ credit ratings change by one or more notches when credit rating agencies provide new ratings. Unique to the literature, I study the influences affecting multi notch versus single notch rating upgrades and downgrades. For Standard & Poors data, I show that rating changes with multiple notches provide more information to the market than single notch rating changes. Consistent with prior literature on the business cycle, I show that investors value good news rating changes (upgrades) more in bad times (recession) and that investors value bad news rating changes (downgrades) more in good times (expansion). I model and test probit models using variables capturing the characteristics of the previous issuer’s credit rating, liquidity, solvency, profitability, and growth opportunity to determine the classification of single notch versus multi notch rating changes. The determinants of multi notch versus single notch rating changes for upgrades and downgrades differ. Business cycle influences are evident. Firms that have multi notch rating upgrades and downgrades have significantly different probit variables vis-à-vis firms that have single notch rating upgrades and downgrades. The important characteristics for determining multiple notch upgrades are a firm’s prior rating change, prior rating, cash flow, total assets and market value. The important characteristics for determining multiple notch downgrades are a firm’s prior rating change, prior rating, current ratio, interest coverage, total debt, operating margin, market to book ratio, capital expenditure, total assets, market value, and market beta. The variables that differ for multi notch upgrades in recessions are cash flow, net income, operating margin, market to book ratio, total assets, and retained earnings. The variables that differ for multi notch downgrades in expansions are a firm’s prior rating change, current ratio, interest coverage ratio, debt ratio, total debt, capital expenditure and market beta. The power of the explanatory tests improves when the stage of the business cycle is considered. Results are robust to consideration of rating changes across rating categories, changes from probit to logit, alternative specifications of accounting variables, lags and leads of recessions and expansions timing, Fama and French industry adjustments, and winsorization levels of variables.

Consumer credit knowledge of personal bankruptcy petitioners and sources used by the petitioners to gain consumer credit knowledge were investigated. Consumer credit knowledge was defined as any understanding which was found useful in solving problems related to consumer credit. Sources of consumer credit knowledge referred to classes taken, information which had been read, information heard on radio or television, and help received through personal counseling. Subjects were selected from individuals whose personal bankruptcy cases were heard in the Bankruptcy Court for the District of Utah during the month of July, 1958. The sample consisted of the first 90 petitioners who were willing to participate in the research project. Research data was obtained form three sources: (a) a consumer credit knowledge test, (b) a personal data questionnaire, and (c) the official bankruptcy petition. Results indicate that this group of personal bankruptcy petitioners had low consumer credit knowledge (60 percent or less) as measured by their response to questions on a consumer credit knowledge test. The petitioners had used a low number of sources (two or less) to gain consumer credit knowledge.

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The focus of this dissertation is the European Credit Default Swaps (CDSs) market. CDSs are the most popular credit derivative products. Three issues are discussed, the first, which is covered in chapter 2, is the investigation of non-diversifiable jump risk in iTraxx sector indices based on a multivariate model that explicitly admits discrete common jumps for an index and its components. Our empirical research shows that both the iTraxx Non-Financials and their components experience jumps during the sample period, which means that the jump risks in the iTraxx sector index are not diversifiable. The second issue, which is covered in chapter 3 is the component structure of credit default swap spreads and their determinants. We firstly extract a transitory component and a persistent component from two different maturities of the Markit iTraxx index and then regress these components against proxies for several commonly used explanatory variables. Our results show that these explanatory variables have significant but differing impacts on the extracted components, which indicates that a two-factor formulation may be needed to model CDS options. The last issue, which is covered in chapters 4, 5 and 6 is the investigation of the linkage between the credit default swap market and the equity market within the European area. We innovatively calibrate the CDS option with the Heston Model to get the implied volatility in the CDS market, which allows us to investigate both the characteristic of implied volatility in the CDS market and the relationship of the two markets not only on the level of daily changes but also with regard to its second moment. Our analysis shows that the stock market weakly leads the CDS market on daily changes but for implied volatility, the stock market leads the CDS market. A VECM analysis shows that only the stock market contributes to price discovery. For sub-investment grade entities, the interactivities between the implied volatility of the CDS market and the implied volatility of the stock market are stronger, especially during the recent credit crunch period. All these results have important implications for the construction of portfolios with credit-sensitive instruments.

本研究探討企業間商業授信(Trade Credit)在總體貨幣政策變化時所扮演的角色，並參考Choi and Kim (2005)分別觀察應收帳款、應付帳款及淨應收帳款之變化，探討當總體貨幣政策變化時財務較佳企業是否會對財務受限制企業【規模較小、利息保障倍數較低、短期債務相對營收比重偏高、財務槓桿偏高】提供財務協助。 本研究實證結果發現，貨幣政策變化確實造成同業間增加商業授信比率；惟由淨應收帳款比率之變化發現，財務指標較佳企業之淨應收帳款比率對總體貨幣政策之敏感度皆低，亦即對財務不佳企業之財務協助不存在，反觀財務受限制企業在貨幣政策變化時期應付帳款被明顯調降，但仍需增加應收帳款，故整體而言，反而造成財務受限制企業於貨幣政策變化時期增加提供淨商業授信之結果，此結果以負債比偏高組及利息保障倍數較低組尤其明顯，說明不但財務較佳企業並無對財務受限制企業提供財務協助，財務受限制企業於貨幣政策變化時，尚有增加淨商業授信之歷力，對貨幣政策之敏感度較高。 / The objective of this paper is to analyze the relationship between monetary shock and trade credit. Following Choi and Kim (2005), we look at both sides of firm’s trade credit as well as net trade credit to find out if financial assistance view stands. The following results are obtained: (1) Account receivable of both large and small firms increases with monetary shock, but the result of net trade credit is not the same. We find no evidence that financial assistance view stands in terms of different sized firm. (2) Financial unconstained firms also don’t offer more net trade credit while financial constrained firms are forced to increase more net trade credit due to huge account payable drop. Therefore, monetary shock increase the financial pressure of fincncial constrained firms especially significant in higher net leverage ratio and lower interest cover ratio groups.

The credit market is an important subject in today’s macroeconomic world. Prior to the introduction of the credit market, traditional models only included the goods market and money market to form the IS-LM model. Under this IS-LM model, a change in money supply would have a known effect, such as a monetary expansion policy will result in a drop in the bond rate because the IS curve will remain constant. However, many previous studies did not show this effect, but instead the opposite; those that did show this effect, the magnitude of the shift was different than a traditional IS-LM model. Once the credit market is introduced into the IS-LM model, both the goods market (IS curve) and the money market (LM curve) will shift, resulting in an undetermined change in bond rate, and will also introduce the loan rate, which also shows an undetermined change. Under this model, when a monetary expansionary policy is in effect, it is possible that the bond rate could decrease, increase, or remain constant. This thesis will determine how the credit channel operates in Taiwan, using quarterly data from 1992Q1 to 2009Q4. The final result shows that under this new model, the credit channel in Taiwan does not necessarily follow the previously-known theory.