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Financial Inclusion Across the United States J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-31 Motohiro Yogo, Andrew Whitten, Natalie Cox
We study retirement and bank account participation for the universe of U.S. households with a member aged 50 to 59 in the administrative tax data. ZCTA-level average income, income inequality, and racial composition predict retirement account participation for low-income households, conditional on household income and regional price parities. Income inequality also predicts bank account participation
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Strategic arbitrage in segmented markets J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-30 Svetlana Bryzgalova, Anna Pavlova, Taisiya Sikorskaya
We propose a model in which arbitrageurs act strategically in markets with entry costs. In a repeated game, arbitrageurs choose to specialize in some markets, which leads to the highest combined profits. We present evidence consistent with our theory from the options market, in which suboptimally unexercised options create arbitrage opportunities for intermediaries. We use transaction-level data to
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Central Bank–Driven Mispricing J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-30 Loriana Pelizzon, Marti G. Subrahmanyam, Davide Tomio
We explore whether Quantitative Easing (QE) negatively affected the functioning of the treasury market. Focusing on the arbitrage between European sovereign bonds and their futures contracts, we show that the scarcity of treasuries created by QE led to a disconnect between the prices of identical assets. We identify three channels: reduced bond market liquidity, increased funding costs in the repo
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Optimal policy for behavioral financial crises J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-28 Paul Fontanier
Should policymakers adapt their macroprudential and monetary policies when the financial sector is vulnerable to belief-driven boom-bust cycles? I develop a model in which financial intermediaries are subject to collateral constraints, and that features a general class of deviations from rational expectations. I show that distinguishing between the drivers of behavioral biases matters for the precise
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The volatility puzzle of the beta anomaly J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-24 Pedro Barroso, Andrew Detzel, Paulo Maio
This paper shows that leading theories of the beta anomaly fail to explain the anomaly’s conditional performance. Abnormal returns and Sharpe ratios of betting-against-beta (BAB) factors rise following months with below-median realized volatility, even controlling for mispricing, limits to arbitrage, lottery preferences, analyst disagreement, and sentiment. Moreover, the leverage constraints theory
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ESG: A panacea for market power? J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-24 Philip Bond, Doron Levit
We study the equilibrium effects of the “S” dimension of ESG under imperfect competition. ESG policies are pledges made by firms that constrain managers to treat their stakeholders better than market conditions alone dictate. Moderate policies limit market power and prompt managers to be more competitive; aggressive polices backfire, both for adopting firms and intended beneficiaries. In contrast to
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Asymmetric information, disagreement, and the valuation of debt and equity J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-21 Snehal Banerjee, Bradyn Breon-Drish, Kevin Smith
We study debt and equity valuation when investors have private information and may exhibit differences of opinion. Our model generates several predictions that are consistent with empirical evidence but difficult to reconcile with traditional models. Belief dispersion relates to expected equity and debt returns in opposite directions. Similarly, expected debt (equity) returns typically increase (decrease)
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Optimal illiquidity J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-18 John Beshears, James J. Choi, Christopher Clayton, Christopher Harris, David Laibson, Brigitte C. Madrian
We study the socially optimal level of illiquidity in an economy populated by households with taste shocks and present bias with naive beliefs. The government chooses mandatory contributions to accounts, each with a different pre-retirement withdrawal penalty. Collected penalties are rebated lump sum. When households have homogeneous present bias, β, the social optimum is well approximated by a single
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Fed information effects: Evidence from the equity term structure J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-14 Benjamin Golez, Ben Matthies
Do investors interpret central bank target rate decisions as signals about the current state of the economy? We study this question using a short-term equity asset that entitles the owner to the near-term dividends of the aggregate stock market. We develop a stylized model of monetary policy and the equity term structure and derive tests of Fed information effects using the short-term asset announcement
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Yield drifts when issuance comes before macro news J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-13 Dong Lou, Gabor Pinter, Semih Üslü, Danny Walker
UK government bond yields tend to drift upwards before scheduled news such as monetary policy announcements and labour market data releases. This effect is particularly pronounced during periods of UK bond issuance and is linked to higher term premia. Financial intermediary constraints play a role as dealers avoid accumulating inventory in pre-news windows following issuance. The composition of liquidity
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Q: Risk, rents, or growth? J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-09 Alexandre Corhay, Howard Kung, Lukas Schmid
We document that the increasing polarization in Tobin’s Q within industries is closely connected to the growing divergence in rents and the emergence of superstar firms over the past four decades, while discount rates and growth rates did not exhibit the same increasing dispersion. We explain these industry polarization trends in an estimated general equilibrium model where each industry consists of
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Self-Declared benchmarks and fund manager intent: “Cheating” or competing? J. Financ. Econ. (IF 10.4) Pub Date : 2025-01-06 Huaizhi Chen, Richard Evans, Yang Sun
Using a panel of self-declared benchmarks, we examine funds’ use of mismatched benchmarks over time. Mismatching is high at the beginning of our sample (45 % of TNA in 2008), consistent with prior studies, but declines significantly over time (27 % in 2020), driven by existing specialized funds changing benchmarks to match their style. Market forces including investor learning, institutional governance
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JAQ of all trades: Job mismatch, firm productivity and managerial quality J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-31 Luca Coraggio, Marco Pagano, Annalisa Scognamiglio, Joacim Tåg
We develop a novel measure of job-worker allocation quality (JAQ) by exploiting employer-employee data with machine learning techniques. Based on our measure, the quality of job-worker matching correlates positively with individual labor earnings and firm productivity, as well as with market competition, non-family firm status, and employees’ human capital. Management plays a key role in job-worker
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Extracting extrapolative beliefs from market prices: An augmented present-value approach J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-26 Stefano Cassella, Te-Feng Chen, Huseyin Gulen, Yan Liu
We propose a latent-variables approach to recover extrapolative beliefs from asset prices. We estimate a present-value model of the price–dividend ratio of the market that embeds both return extrapolation and cash-flow extrapolation, alongside discount rates and rational expectations of dividend growth. This approach allows us to measure extrapolation bias without having to rely on survey data, and
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Regulating inattention in fee-based financial advice J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-24 Roger M. Edelen, Kingsley Y.L. Fong, Jingyi Han
We study the impact of disclosure and inattention on the decision to retain fee-based financial advice using a two-tiered natural regulatory experiment. Increased salience in fee disclosure raises the drop rate for advice, implying improved attention — particularly for relatively sophisticated investors. However, a novel auto-drop requirement for inattentive investors generates far more drops, implying
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Four facts about ESG beliefs and investor portfolios J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-21 Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Zhenhao Tan, Stephen Utkus, Xiao Xu
We analyze survey data on ESG beliefs and preferences in a large panel of retail investors linked to administrative data on their investment portfolios. The survey elicits investors’ expectations of long-term ESG equity returns and asks about their motivations, if any, to invest in ESG assets. We document four facts. First, investors generally expected ESG investments to underperform the market. Between
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Biodiversity finance J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-19 Caroline Flammer, Thomas Giroux, Geoffrey M. Heal
We study biodiversity finance—the use of private capital to finance biodiversity conservation and restoration—which is a new practice in sustainable finance. First, we provide a conceptual framework that lays out how biodiversity can be financed by pure private capital and blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk
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Strategic insider trading and its consequences for outsiders: Evidence from the eighteenth century J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-16 Mathijs Cosemans, Rik Frehen
This paper uses hand-collected historical data to provide empirical evidence on the strategic trading behavior of insiders and its consequences for outsiders. Specifically, we collect all equity trades of all insiders and outsiders in an era without legal restrictions on insider trading and a market where trading is non-anonymous. We find that access to private information creates a significant gap
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Household mobility and mortgage rate lock J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-12 Jack Liebersohn, Jesse Rothstein
Rising interest rates can create “mortgage rate lock” for homeowners with fixed rate mortgages, who can hold onto their low rates as long as they stay in their homes but would have to take on new mortgages with higher rates if they moved. We show mobility rates fell in 2022 and 2023 for homeowners with mortgages, as market rates rose. We observe both absolute declines and declines relative to homeowners
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The impact of impact investing J. Financ. Econ. (IF 10.4) Pub Date : 2024-12-02 Jonathan B. Berk, Jules H. van Binsbergen
The change in the cost of capital that results from a divestiture strategy can be closely approximated by a simple function of three parameters: (1) the fraction of socially conscious capital, (2) the fraction of targeted firms in the economy and (3) the return correlation between the targeted firms and the rest of the stock market. When calibrated to current data, we demonstrate that the impact on
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CEO turnover and director reputation J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-23 Felix von Meyerinck, Jonas Romer, Markus Schmid
This paper analyzes the reputational effects of forced CEO turnovers on outside directors. We find that directors interlocked to a forced CEO turnover experience large and persistent increases in withheld votes at subsequent re-elections relative to non-turnover-interlocked directors. Directors are not penalized for an involvement in a turnover per se but for forced CEO turnovers that are related to
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Signals and stigmas from banking interventions: Lessons from the Bank Holiday of 1933 J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-22 Matthew Jaremski, Gary Richardson, Angela Vossmeyer
A nationwide panic forced President Roosevelt to declare a banking holiday in March 1933. The government reopened banks sequentially using a process that sent noisy signals about banks’ health. New microdata reveals that the public responded to these signals. Deposits at rapidly reopened banks rebounded quicker than at comparable or stronger banks that reopened even a few days later. The stigma of
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Aspirational utility and investment behavior J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-16 Andreas Aristidou, Aleksandar Giga, Suk Lee, Fernando Zapatero
We explore the extent to which aspirations – such as those forged in the course of social interactions – explain ‘puzzling’ behavioral patterns in investment decisions. We motivate an aspirational utility, reminiscent of Friedman and Savage (1948), where social considerations (e.g., status concerns) provide an economic foundation for aspirations. We show this utility can explain a range of observed
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Arbitrage-based recovery J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-08 Ferenc Horvath
We develop a novel recovery theorem based on no-arbitrage principles. To implement our Arbitrage-Based Recovery Theorem empirically, one needs to observe the Arrow–Debreu prices only for one single maturity. We perform several different density tests and mean prediction tests using more than 26 years of S&P 500 options data, and we find evidence that our method can correctly recover the probability
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Gig labor: Trading safety nets for steering wheels J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-07 Vyacheslav Fos, Naser Hamdi, Ankit Kalda, Jordan Nickerson
Using administrative data on credit profiles matched with unemployment insurance (UI) for individuals in the U.S., we show that laid-off workers with access to Uber rely less on household debt, experience fewer delinquencies, and are less likely to apply for UI benefits. Our empirical strategy exploits both the staggered market entry of Uber across cities and the differential benefit of its entry across
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Information sharing in financial markets J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-06 Itay Goldstein, Yan Xiong, Liyan Yang
We study information sharing between strategic investors who are informed about asset fundamentals. We demonstrate that a coarsely informed investor optimally chooses to share information if his counterparty investor is well informed. By doing so, the coarsely informed investor invites the other investor to trade against his information, thereby reducing his price impact. Paradoxically, the well informed
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From employee to entrepreneur: The role of unemployment risk J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-04 Ai Jun Hou, Sara Jonsson, Xiaoyang Li, Qinglin Ouyang
We use Swedish administrative data to study the role of unemployment risk in salaried employees’ decisions to become entrepreneurs. Using the 2001 relaxation of Sweden’s last-in-first-out (LIFO) dismissal rule as an exogenous shock to unemployment risk, we find that employees facing increased unemployment risk are more likely to become entrepreneurs. The effect is more pronounced for employees with
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The moral preferences of investors: Experimental evidence J. Financ. Econ. (IF 10.4) Pub Date : 2024-11-01 Jean-François Bonnefon, Augustin Landier, Parinitha Sastry, David Thesmar
We characterize investors’ moral preferences in a parsimonious experimental setting, where we auction stocks with various ethical features. We find strong evidence that investors seek to align their investments with their social values (“value alignment”), and find no evidence of behavior driven by the social impact of investment decisions (“impact-seeking preferences”). First, the willingness to pay
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Credit supply and house prices: Evidence from mortgage market segmentation J. Financ. Econ. (IF 10.4) Pub Date : 2024-10-28 Manuel Adelino, Antoinette Schoar, Felipe Severino
This paper develops a difference-in-differences estimator that uses annual changes in the conforming loan limit and the 80% loan-to-value (LTV) threshold to isolate the impact of easier access to credit on house prices. Houses that become eligible for financing with an 80% LTV conforming loan increase in value by about $1.17 per square foot, controlling for a rich set of characteristics. Our estimates
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Robustness and dynamic sentiment J. Financ. Econ. (IF 10.4) Pub Date : 2024-10-28 Pascal J. Maenhout, Andrea Vedolin, Hao Xing
Errors in survey expectations display waves of pessimism and optimism. This paper develops a novel theoretical framework of time-varying beliefs capturing this fact. In our model, dynamic beliefs arise endogenously due to agents’ attitude towards alternative models. Decision-maker’s distorted beliefs generate countercyclical risk aversion, procyclical portfolio weights, and countercyclical equilibrium
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Information technology and lender competition J. Financ. Econ. (IF 10.4) Pub Date : 2024-10-25 Xavier Vives, Zhiqiang Ye
We study how information technology (IT) affects lender competition, entrepreneurs’ investment, and welfare in a spatial model. The effects of an IT improvement depend on whether it weakens the influence of lender–borrower distance on monitoring costs. If it does, it has a hump-shaped effect on entrepreneurs’ investment and social welfare. If not, competition intensity does not vary, improving lender
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Sustainable finance versus environmental policy: Does greenwashing justify a taxonomy for sustainable investments? J. Financ. Econ. (IF 10.4) Pub Date : 2024-10-23 Roman Inderst, Marcus M. Opp
Our paper analyzes whether a planner should design a taxonomy for sustainable investment products when conventional tools for environmental regulation can also be used to address externalities arising from firm production. We first show that the private market provision of ESG funds marketed to retail investors involves greenwashing, so that a mandatory taxonomy is necessary to generate real effects
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Macroeconomic perceptions, financial constraints, and anomalies J. Financ. Econ. (IF 10.4) Pub Date : 2024-10-05 Wei He, Zhiwei Su, Jianfeng Yu
This paper studies the heterogeneous effects of subjective macroeconomic expectations on the cross-section of equity returns. We argue that an upward revision in expectations of macroeconomic productivity might be accompanied by an excessive increase in investment and external financing, inflated current equity prices, and thus lowered subsequent returns, particularly for financially constrained firms
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Token-based platform governance J. Financ. Econ. (IF 10.4) Pub Date : 2024-10-03 Joseph Abadi, Markus Brunnermeier
We develop a model to compare the governance of traditional shareholder-owned platforms to that of platforms that issue tokens. A traditional shareholder governance structure leads a platform to extract rents from its users. A platform that issues tokens for its services can mitigate this rent extraction, as rent extraction lowers the platform owners’ token seigniorage revenues. However, this mitigation
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Broken promises, competition, and capital allocation in the mutual fund industry J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-28 Simona Abis, Anton Lines
What characteristics of mutual funds do investors care about? In addition to performance and fees, we show that investors exhibit a clear preference for managers who adhere to the strategies they describe in their prospectuses. Capital flows respond negatively when funds diverge from the average holdings of their text-based strategy peer groups, but positively when they outperform those peer averages
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Comparing factor models with price-impact costs J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-21 Sicong Li, Victor DeMiguel, Alberto Martín-Utrera
We propose a formal statistical test to compare asset-pricing models in the presence of price impact. In contrast to the case without trading costs, we show that in the presence of price-impact costs different models may be best at spanning the investment opportunities of different investors depending on their absolute risk aversion. Empirically, we find that the five-factor model of Hou et al. (2021)
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Estimating and testing investment-based asset pricing models J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-20 Frederico Belo, Yao Deng, Juliana Salomao
Investment-based asset pricing models typically predict a close link between a firm’s stock return and its characteristics at any point in time. Yet, previous studies have primarily focused on the weaker prediction that this link holds on average, finding substantial empirical support. We show how to incorporate the time-series predictions in the estimation and testing of investment-based models using
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Conditional risk J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-20 Niels Joachim Gormsen, Christian Skov Jensen
We study the extent to which time-variation in market betas influence estimates of CAPM alphas. Given the observed variation in conditional market betas, market risk premia, and market variance, the required compensation for conditional market risk can, in theory, be as large as the unconditional equity premium. We implement the conditional CAPM using state-of-the-art methods in a broad global sample
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Direct lenders in the U.S. middle market J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-17 Tetiana Davydiuk, Tatyana Marchuk, Samuel Rosen
This paper studies the rise of direct lending using a comprehensive dataset of investments by business development companies (BDC). We exploit three exogenous shocks to credit supply, including new banking regulations and a major finance company collapse, to establish that BDC capital acts as a substitute for traditional financing. Using firm-level data, we further document that firms’ access to BDC
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Competition, Product differentiation and Crises: Evidence from 18 million securitized loans J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-12 Peter Haslag, Kandarp Srinivasan, Anjan V. Thakor
RMBS sponsors contributed to the rise of new product features in securitized mortgages prior to the 2008 financial crisis. Using a regulatory shock to sponsor competition , we show securitization influences the design of mortgage contracts, empirically demonstrating a unique, feedback loop of product differentiation from the derived security (MBS) to the underlying asset (loans). Product differentiation
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Pricing of sustainability-linked bonds J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-12 Peter Feldhütter, Kristoffer Halskov, Arthur Krebbers
We examine the pricing of sustainability-linked bonds (SLBs), where the cash flows depend on the bond issuer achieving one or more Environmental, Social and Governance (ESG) goals. Investors are willing to accept a 1–2bps lower yield due to the bond’s ESG label, providing evidence of investors caring about environmental impact. Furthermore, we find the average probability of missing the target is 14%–39%
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Do personal taxes affect investment decisions and stock returns? J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-11 Alexander P. Kontoghiorghes
This paper studies the causal effects of personal investment taxes on stock returns and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in capital gains and dividend tax-exempt investment accounts for the first time. Using a difference-in-differences
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Bank heterogeneity and financial stability J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-10 Itay Goldstein, Alexandr Kopytov, Lin Shen, Haotian Xiang
We propose a model of the financial system in which banks are individually prone to runs and connected through fire sales. Strategic complementarities within and across banks amplify each other, making heterogeneity in bank risks a key factor shaping the fragility of each bank and the entire system. As long as different banks are interconnected, an increase in heterogeneity stabilizes all banks. Reductions
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Specialization and performance in private equity: Evidence from the hotel industry J. Financ. Econ. (IF 10.4) Pub Date : 2024-09-07 Christophe Spaenjers, Eva Steiner
Using granular data on U.S. hotel investments over the past two decades, we show that industry-specialist PE firms achieve higher net income from operations and higher capital gains from sale than generalist PE firms for comparable properties. Those results are driven by specialists implementing more and larger cost savings without compromising revenues. Fundamentally, specialists utilize their hotel-specific
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Systemic bank runs without aggregate risk: How a misallocation of liquidity may trigger a solvency crisis J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-31 Lukas Altermatt, Hugo van Buggenum, Lukas Voellmy
We develop a general equilibrium model of self-fulfilling bank runs. The key novelty is the way in which the banking system’s assets and liabilities are connected. Banks issue loans to entrepreneurs who sell goods to households, which in turn pay for the goods by redeeming bank deposits. The return on bank assets is thus contingent on households being able to withdraw their deposits. In a run, not
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The risk and return of equity and credit index options J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-30 Hitesh Doshi, Jan Ericsson, Mathieu Fournier, Sang Byung Seo
We develop a structural credit risk model, which allows us to price equity/credit indices and their options through the asset dynamics of index constituents. We estimate the model via MLE and find that equity and credit index option prices are well explained out-of-sample. Contrary to recent empirical findings, the two option markets are not inconsistently priced through the lens of our model. Returns
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The risk and return of impact investing funds J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-30 Jessica Jeffers, Tianshu Lyu, Kelly Posenau
We provide the first analysis of the risk exposure and risk-adjusted performance of impact investing funds, private market funds with dual financial and social goals. We introduce a dataset of impact fund cash flows and exploit distortions in VC performance measures to characterize risk profiles. Impact funds have a lower market than comparable private market strategies. Accounting for , impact funds
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Modeling volatility in dynamic term structure models J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-30 Hitesh Doshi, Kris Jacobs, Rui Liu
We propose no-arbitrage term structure models with volatility factors that follow GARCH processes. The models’ tractability is similar to canonical affine term structure models, but they fit yield volatility much better, especially for long-maturity yields. This improvement does not come at the expense of a deterioration in yield fit. Because of the improved volatility fit, the model performs substantially
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Monetary policy and fragility in corporate bond mutual funds J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-29 John Chi-Fong Kuong, James O’Donovan, Jinyuan Zhang
We document aggregate outflows from corporate bond mutual funds days before and after the announcement of increases in the Federal Funds Target rate (FFTar). To rationalize this phenomenon, we build a model in which funds’ net-asset-values (NAVs) are stale and investors strategically redeem to profit from the mispricing when they learn about the increases of FFTar. Consistent with the model’s predictions
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Uncertainty about what is in the price J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-24 Joël Peress, Daniel Schmidt
A critical question facing speculators contemplating to trade on private information is whether their signal has already been priced in by the market. In our model, speculators assess the novelty of their information based on recent price movements, and market makers are aware that speculators might be trading on stale news. An asymmetric response to past price movements ensues: after price increases
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Efficient estimation of bid–ask spreads from open, high, low, and close prices J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-14 David Ardia, Emanuele Guidotti, Tim A. Kroencke
Popular bid–ask spread estimators are downward biased when trading is infrequent. Moreover, they consider only a subset of open, high, low, and close prices and neglect potentially useful information to improve the spread estimate. By accounting for discretely observed prices, this paper derives asymptotically unbiased estimators of the effective bid–ask spread. Moreover, we combine them optimally
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The cross-border effects of bank capital regulation J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-08 Saleem Bahaj, Frederic Malherbe
We study the international coordination of bank capital requirements under a host-country rule: the requirement depends on where the borrower, not the bank, is located. In such a regime, countries compete for scarce bank equity capital. Raising a country’s requirement may generate bank capital outflows as well as inflows. We pin down the condition for the sign of the capital flow and the associated
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Racial disparities in the Paycheck Protection Program J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-08 Sergey Chernenko, David Scharfstein
Consistent with contemporaneous research, we document that minority-owned firms were more likely than observationally similar white-owned firms to receive PPP loans from nonbank lenders than from banks. However, we show that this substitution to nonbanks was only partial, resulting in significantly lower PPP take-up by minority-owned firms, particularly Black-owned ones. Location and firm characteristics
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The credit supply channel of monetary policy tightening and its distributional impacts J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-06 Joshua Bosshardt, Marco Di Maggio, Ali Kakhbod, Amir Kermani
This paper studies how tightening monetary policy transmits to the economy through the mortgage market and sheds new light on the distributional consequences at both individual and regional levels. We specifically examine the sharp increase in mortgage interest rates during 2022 and 2023. We find that almost all of the decline in mortgages compared to prior years was concentrated in loans that would
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Disclosing and cooling-off: An analysis of insider trading rules J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-01 Jun Deng, Huifeng Pan, Hongjun Yan, Liyan Yang
We analyze two insider-trading regulations recently introduced by the Securities and Exchange Commission: mandatory disclosure and “cooling-off period”. The former requires insiders disclose trading plans at adoption, while the latter mandates a delay period before trading. These policies affect investors’ trading profits, risk sharing, and hence their welfare. If the insider has sufficiently large
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Inflation and Disintermediation J. Financ. Econ. (IF 10.4) Pub Date : 2024-08-01 Isha Agarwal, Matthew Baron
We test a bank credit channel through which unexpected increases in inflation lead to short-run macroeconomic fluctuations. For identification, we study an unexpected U.S. inflation increase in early 1977 and exploit differences in state-level reserve requirements for Federal Reserve nonmember banks, which create differences in banks’ inflation exposures. More exposed banks reduce lending, lowering
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From Man vs. Machine to Man + Machine: The art and AI of stock analyses J. Financ. Econ. (IF 10.4) Pub Date : 2024-07-22 Sean Cao, Wei Jiang, Junbo Wang, Baozhong Yang
An AI analyst trained to digest corporate disclosures, industry trends, and macroeconomic indicators surpasses most analysts in stock return predictions. Nevertheless, humans win “Man vs. Machine” when institutional knowledge is crucial, e.g., involving intangible assets and financial distress. AI wins when information is transparent but voluminous. Humans provide significant incremental value in “Man
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Block trade contracting J. Financ. Econ. (IF 10.4) Pub Date : 2024-07-19 Markus Baldauf, Christoph Frei, Joshua Mollner
We study the optimal execution problem in a principal–agent setting. A client contracts to purchase from a dealer. The dealer hedges, buying from the market, creating temporary and permanent price impact. The client chooses a contract, which specifies payment as a function of market prices; hidden action precludes conditioning on the dealer’s hedging trades. We show the first-best benchmark is theoretically
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Are cryptos different? Evidence from retail trading J. Financ. Econ. (IF 10.4) Pub Date : 2024-07-06 Shimon Kogan, Igor Makarov, Marina Niessner, Antoinette Schoar
Trading in cryptocurrencies grew rapidly over the last decade, dominated by retail investors. Using data from eToro, we show that retail traders are contrarian in stocks and gold, yet the same traders follow a momentum-like strategy in cryptocurrencies. The differences are not explained by individual characteristics, investor composition, inattention, differences in fees, or preference for lottery-like