Finance Publications

How Do Foreclosures Exacerbate Housing Downturns?

Anonymous — Tue, 27 Apr 2021 14:31:33 +0000

How Do Foreclosures Exacerbate Housing Downturns? Anonymous (not verified) Tue, 04/27/2021 - 08:31

This article uses a structural model to show that foreclosures played a crucial role in exacerbating the recent housing bust and to analyse foreclosure mitigation policy. We consider a dynamic search model in which foreclosures freeze the market for non-foreclosures and reduce price and sales volume by eroding lender equity, destroying the credit of potential buyers, and making buyers more selective. These effects cause price-default spirals that amplify an initial shock and help the model fit both national and cross-sectional moments better than a model without foreclosure. When calibrated to the recent bust, the model reveals that the amplification generated by foreclosures is significant: ruined credit and choosey buyers account for 25.4% of the total decline in non-distressed prices and lender losses account for an additional 22.6%. For policy, we find that principal reduction is less cost-effective than lender equity injections or introducing a single seller that holds foreclosures off the market until demand rebounds. We also show that policies that slow down the pace of foreclosures can be counterproductive.

Guren, A. M., & McQuade, T. J. (2020). How do foreclosures exacerbate housing downturns? The Review of Economic Studies, 87(3), 1331-1364. https://doi.org/10.1093/restud/rdaa001

Guren, A. M., & McQuade, T. J. (2020). How do foreclosures exacerbate housing downturns? The Review of Economic Studies, 87(3), 1331-1364. https://doi.org/10.1093/restud/rdaa001

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Disaster on the Horizon: The Price Effect of Sea Level Rise.

Anonymous — Wed, 29 Apr 2020 20:26:12 +0000

Disaster on the Horizon: The Price Effect of Sea Level Rise. Anonymous (not verified) Wed, 04/29/2020 - 14:26

Homes exposed to sea level rise (SLR) sell for approximately 7% less than observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. Consistent with causal identification of long-horizon SLR costs, we find no relation between SLR exposure and rental rates and a 4% discount among properties not projected to be flooded for almost a century. Our findings contribute to the literature on the pricing of long-run risky cash flows and provide insights for optimal climate change policy.

Finance: Bernstein, A., Gustafson, M.T. and Lewis, R., 2019. Disaster on the horizon: The price effect of sea level rise. Journal of Financial Economics, 134(2)

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Bernstein, A., Gustafson, M.T. and Lewis, R., 2019.

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Why Don't We Agree? Evidence from a Social Network of Investors

Anonymous — Thu, 15 Aug 2019 02:13:46 +0000

Why Don't We Agree? Evidence from a Social Network of Investors Anonymous (not verified) Wed, 08/14/2019 - 20:13

We study sources of investor disagreement using sentiment of investors from a social media investing platform, combined with information on the users' investment approaches (e.g., technical, fundamental). We examine how much of overall disagreement is driven by different information sets versus differential interpretation of information by studying disagreement within and across investment approaches. Overall disagreement is evenly split between both sources of disagreement, but within-group disagreement is more tightly related to trading volume than cross-group disagreement. Although both sources of disagreement are important, our findings suggest that information differences are more important for trading than differences across market approaches.

Cookson, J. Anthony and Niessner, Marina, Why Don't We Agree? Evidence from a Social Network of Investors (March 6, 2019). Journal of Finance, Forthcoming.

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Cookson, J. Anthony, Niessner, M. (2019)

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Medicaid and Household Savings Behavior: New Evidence from Tax Refunds

Anonymous — Thu, 15 Aug 2019 02:07:21 +0000

Medicaid and Household Savings Behavior: New Evidence from Tax Refunds Anonymous (not verified) Wed, 08/14/2019 - 20:07

Using data on over 57,000 low-income tax filers, we estimate the effect of Medicaid access on the propensity of households to save or repay debt from their tax refunds. We instrument for Medicaid access using variation in state eligibility rules. We find substantial heterogeneity across households in the savings response to Medicaid. Households that are not experiencing financial hardship behave in a manner consistent with a precautionary savings model, meaning they save less under Medicaid. In contrast, among households experiencing financial hardship, Medicaid eligibility increases refund savings rates by roughly 5 percentage points or $102. For both sets of households, effects are stronger in states with lower bankruptcy exemption limits – consistent with uninsured, financially constrained households using bankruptcy to manage health expenditure risk. Our results imply that expansions to the social safety net may affect the magnitude of the consumption response to tax rebates.

Gallagher, Emily and Gopalan, Radhakrishnan and Grinstein-Weiss, Michal and Sabat, Jorge, Medicaid and Household Savings Behavior: New Evidence from Tax Refunds (March 11, 2019). Journal of Financial Economics (JFE), Forthcoming; 9th Miami Behavioral Finance Conference 2018.

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Gallagher, E., Gopalan, R., Grinstein-Weiss, M., Sabat, J. (2019).

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Partners in Crime: Schools, Neighborhoods and the Formation of Criminal Networks

Anonymous — Thu, 15 Aug 2019 01:58:50 +0000

Partners in Crime: Schools, Neighborhoods and the Formation of Criminal Networks Anonymous (not verified) Wed, 08/14/2019 - 19:58

Why do crime rates differ greatly across neighborhoods and schools? Comparing youth who were assigned to opposite sides of newly drawn school boundaries, we show that concentrating disadvantaged youth together in the same schools and neighborhoods increases total crime. We then show that these youth are more likely to be arrested for committing crimes together – to be “partners in crime”. Our results suggest that direct peer interaction is a key mechanism for social multipliers in criminal behavior. As a result, policies that increase residential and school segregation will – all else equal – increase crime through the formation of denser criminal networks.

Deming, D. J., Billings, S. B., & Ross, S. (2016). Partners in crime: Schools, neighborhoods and the formation of criminal networks. ().National Bureau of Economic Research. doi:10.3386/w21962

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Deming, D. J., Billings, S. B., & Ross, S. (2016).

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Life After Lead: Effects of Early Interventions for Children Exposed to Lead

Anonymous — Tue, 13 Aug 2019 15:13:01 +0000

Life After Lead: Effects of Early Interventions for Children Exposed to Lead Anonymous (not verified) Tue, 08/13/2019 - 09:13

Lead pollution is consistently linked to cognitive and behavioral impairments, yet little is known about the benefits of public health interventions for children exposed to lead. This paper estimates the long-term impacts of early-life interventions (e.g. lead remediation, nutritional assessment, medical evaluation, developmental surveillance, and public assistance referrals) recommended for lead-poisoned children. Using linked administrative data from Charlotte, NC, we compare outcomes for children who are similar across observable characteristics but differ in eligibility for intervention due to blood lead test results. We find that the negative outcomes previously associated with early-life exposure can largely be reversed by intervention.

Billings, S., & Schnepel, K. (2018). Life after lead: Effects of early interventions for children exposed to lead. American Economic Journal-Applied Economics, 10(3), 315-344. doi:10.1257/app.20160056

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Billings, Stephen B., and Kevin T. Schnepel. (2018)

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Why Are Some Countries Rich and Others Poor?

Anonymous — Tue, 19 Jun 2018 17:08:58 +0000

Why Are Some Countries Rich and Others Poor? Anonymous (not verified) Tue, 06/19/2018 - 11:08

One of the oldest and most important questions in economics is, “Why are some countries rich and others poor?” Scholars have proposed numerous explanations for what increases a country’s level of economic wealth, including free trade, more investment, temperate climate, good health, high education, financial market development, and good government. Historically, empirical studies of aggregate economic growth have studied country-by-country differences. With so many proposed explanations, understanding which factors cause greater wealth has proven difficult.

Recent research by Leeds Finance faculty member, Tony Cookson and his co-authors takes a different approach to this classic question – studying what determines wealth across Native American reservations. Specifically, Cookson and his co-authors study a 1953 law that assigned state courts to some (but not all) reservations. They found that reservations under state courts exhibit strikingly stronger economic performance. Digging deeper, they show that state courts encourage more lending by providing stronger contract enforcement. The additional lending facilitates productive investments, particularly in sectors that rely on debt, and over the six decades since the law passed large differences in income emerged for this reason. The study provides fresh evidence that good contract enforcement is important for economic development.

Brown, James R.; J. Anthony Cookson and Rawley Z. Heimer. “Law and Finance Matter: Lessons from Externally-Imposed Courts.” Review of Financial Studies. Vol 30, No. 3 (March 2017), pp. 1019-1051.

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Brown, James R.; J. Anthony Cookson and Rawley Z. Heimer (2017)

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