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Forecasting of Overdue Mortgage debt Volumes Using Mortgage Default Risk Index

Student: Shiryaeva Marina

Supervisor: Dmitriy Potapov

Faculty: Faculty of Economics, Management, and Business Informatics

Educational Programme: Economics (Bachelor)

Final Grade: 8

Year of Graduation: 2020

The overdue debt indicator is the main indicator of the mortgage loan portfolio's quality of Russian banks. Banks need to forecast this indicator to maintain the mortgage loan portfolio’s quality at a high level. This study is contributed to predict the volume of overdue mortgage debt with 30, 90, 180 and over 180-day delay in payments using the mortgage default risk index (MDRI). The idea of the MDRI calculation was first proposed by Chauvet et. al. (2016). In this paper, the MDRI was built in real time on the basis of statistics available on the frequency of Google search queries. When selecting search queries for MDRI we took into account the characteristic property of search queries formulation by Russian users when selecting search queries for MDRI. The analysis is based on the monthly aggregated data on Russian macroeconomic indicators in 2009-2019. It shown that autoregressive models of the integrated moving average with the MDRI have a greater predictive power than similar models without the MDRI. The root mean squared error (RMSE) of the forecast was used as a metric for predictive quality. The RMSE decreased by an average of 0.12% when MDRI was included in the model.

Full text (added May 12, 2020)

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