Expectations Uncertainty and Household Economic Behavior

December 13, 2018
Working Paper

We show that there exists significant heterogeneity across US households in how uncertain they are in their expectations regarding personal and macroeconomic outcomes, and that uncertainty in expectations predicts households' choices. Individuals with lower income or education, more precarious finances, and living in counties with higher unemployment are more uncertain in their expectations regarding own-income growth, inflation, and national home price changes. More

Management by the Numbers: A Formal Approach to Deriving Informational and Distributional Properties of “Un-­managed” Earnings

October 26, 2018
Article • UNC Tax Center

We explore the theoretical relation between earnings and market returns as well as the properties of earnings frequency distributions under the assumption that managers use unbiased accounting information to sequentially decide on real options their firms have and report generated earnings truthfully, with the market pricing the firm based on those reported earnings. More

Mandating Women on Boards: Evidence from the United States

October 13, 2018
Working Paper

Our findings indicate that mandated increases in gender diversity on corporate boards are detrimental to shareholder value. More

Leverage Cycles in a Mature Asset Class: New Evidence from a Natural Laboratory

October 12, 2018
Working Paper

We model leverage cycles in the natural laboratory of a mature asset class, namely US Commercial Real Estate. In this setting we can observe entrepreneurs' asset values as well as debt balance and thus model capital-market yields, as conditioned by market-wide leverage, which indicates debt availability. Using a VAR framework, we examine variance decompositions and impulse-response functions. We show that leverage constitutes the primary driver of innovations in capital-market yields and vice versa. We further find evidence for flight to quality as well as knock-on effects that affect low-leverage entrepreneurs in the market. More

Common Ground: How to Pursue a Mixed Strategy for Economic Development and Come Out Ahead

October 11, 2018
White Paper • Center for Competitive Economies

Like anyone trying to get something done with limited time and resources, economic developers have a lot of options to weigh when formulating a strategy to attract and retain businesses in their local economy. Over the years, economic development researchers have espoused a succession of theories as they’ve learned more about the many factors that influence economic growth. Historically, practitioners have tended to respond by focusing their efforts around what they perceive as the latest and greatest thinking, often at the expense of previously favored approaches. In practice, this has led to waves in which economic developers have focused on recruiting large, established companies or on fostering home-grown start-ups—but rarely both. More

Price Discovery of a Speculative Asset: Evidence from a Bitcoin Exchange

October 01, 2018
Working Paper

This paper examines price discovery and liquidity provision in the secondary market for bitcoin -- an asset that has no observable fundamentals and is associated with a high level of speculative trading. Based on a comprehensive dataset of the full limit order book of BTC-e over the 2013-2014 period, we find that order informativeness generally increases with order aggressiveness within the first 10 tiers, but that this pattern reverses in the outer layers of the book. In a high volatility environment, aggressive orders seem to be more attractive to informed agents, as reflected by the increased information content of such orders, although market liquidity appears to migrate outward in response to the information asymmetry. More

Contract Provisions, Default Risk and Bond Prices: Evidence from Puerto Rico

September 29, 2018
Working Paper

This chapter investigates the pricing of key contract provisions of Puerto Rican debt. In doing so, the chapter contributes to a body of research that asks the questions: do investors price contract provisions? Does the pricing of contract provisions vary with credit risk? To our knowledge, this is the first study to address these questions for the case of Puerto Rico or any municipal issuer. Puerto Rico’s unique status as a U.S. territory implies that its subsidiaries, such as municipalities, cannot file for bankruptcy under Chapter 9 of the U.S. Bankruptcy Code. More

Net-Metered Distributed Renewable Energy: A Peril for Utilities?

September 27, 2018
Working Paper

Our paper studies the implications of “distributed renewable energy” (such as rooftop solar panels) for utility profits and social welfare under net metering that has sparked heated debates in practice. More

Non-Cognitive Abilities and Financial Delinquency: The Role of Self-Efficacy in Avoiding Financial Distress

September 23, 2018

We investigate a novel determinant of financial distress, namely individuals' self-efficacy, or belief that their actions can influence the future. Individuals with high self-efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, non-cognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions. More

Activism and Empire Building

September 08, 2018
Working Paper

We study the role of hedge fund activists in curbing empire building. We show that firms with poor acquisition records are more likely to become activist targets. Our findings highlight an important channel through which activists improve the efficiency of public companies. More