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Faculty & Research

Reference Points in Refinancing Decisions - Virginia Gianinazzi

05 May
2022
2:00 pm
Jouy-en-Josas
English

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2022-05-05T14:00:00 2022-05-05T15:00:00 Reference Points in Refinancing Decisions - Virginia Gianinazzi Finance Speaker : Virginia Gianinazzi (Nova Business School)   Jouy-en-Josas

Finance

Speaker : Virginia Gianinazzi (Nova Business School)

 

This paper shows that households’ mortgage refinancing decisions suboptimally depend on uninformative reference points, imposing a friction to the refinancing channel of monetary policy. I study refinancing behavior in the UK, where on pre-determined dates initial fixed rates reset and mortgagors automatically move onto a reversion rate above market rates. A borrower’s expired fixed rate determines whether failing to  refinance is perceived as a loss or as a gain, thus serving as a salient reference point. I find that borrowers for whom inaction implies a relative gain refinance on average 13.4% less than borrowers who face a loss. This evidence is at odds with optimal models of refinancing since future borrowing costs are unrelated to past rates.

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Participate

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2022-05-05T14:00:00 2022-05-05T15:00:00 Reference Points in Refinancing Decisions - Virginia Gianinazzi Finance Speaker : Virginia Gianinazzi (Nova Business School)   Jouy-en-Josas