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Essays in Real Estate Finance and Behavioral Economics

  • Author(s): Echeverry Perez, David Felipe
  • Advisor(s): Wallace, Nancy
  • Kermani, Amir
  • et al.

This dissertation consists of two chapters. The first one deals with the information content of bond prices in private label securitization markets. The performance of a security backed by a pool of loans is affected by default correlation, and not only the probability of default. I imply default correlation from the market price of collateralized mortgage obligations. Implied correlations are informative about subsequent bond downgrades, but this information content depends on the quality of documentation on the underlying loans. Correlations implied from junior tranches are no more informative than those of AAA tranches for "low-doc" deals, and the latter no less informative than the former for "full-doc" deals. Errors in computing default correlations were not exclusive to AAA investors.

The second chapter in this dissertation deals with the structural estimations of utility-based models in a setting of economic decision-making. Dropping the assumption that all individuals are all self-regarding we develop a model of utility maximization under social preferences. We use data from a common pool resource (CPR) game run in the field (1,095 subjects) to estimate a structural model including preferences for selfishness, altruism, reciprocity and equity, identifying preference types using a latent class logit model. Exogenous determinants of type are examined such as socio-economic characteristics, perceptions on the CPR, perceived interest in cooperation among the community, whether the participant does volunteer work and whether the CPR is the household main economic activity of the household. A competing explanation of deviations from Nash equilibrium is the existence of a cognitive factor: the construction of a best reply might make rational expectations about other players’ mistakes (e.g. quantal response equilibrium). We do not find evidence for cognitive heterogeneity. Choice prediction based on types is robust out of sample.

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