Embedded Files
Assistant Professor of Finance at University of Missouri Trulaske College of Business
Research Interests: Household Finance, Asset Pricing, Portfolio Allocation, Real Estate Finance
E-Mail: jshen at missouri.edu
Publications:
Countercyclical Risks, Consumption and Portfolio Choice: Theory and Evidence, Management Science, 2023, Volume 70, Issue 5, 2862–2881.
Best PhD Paper Award at 2018 EFMA Annual Meeting
Doctoral Student Travel Grants at 2019 MFA Annual Meeting
Asset Pricing and Risk Sharing Implications of Alternative Pension Plan Systems (with Nuno Coimbra, Francisco Gomes and Alexander Michaelides), Journal of Finance, Forthcoming
Best Paper in Finance at 2023 Financial Management and Accounting Research Conference
Semi-finalist for Best Paper Award at 2022 FMA Annual Meeting
Working papers:
Journal of Financial and Quantitative Analysis, Revise & Resubmission
Semi-finalist for Best Paper Award at 2023 FMA Annual Meeting
We propose a novel consumption measure that has a weekly frequency and is based on real-time shopping data. Our measure solves the joint equity premium and risk-free rate puzzles with a risk aversion coefficient that is much lower than any other consumption measures. It can explain the cross-sectional variation in expected returns on various portfolios and individual stocks. Our model decomposes consumption shocks into different frequencies of volatility and shows that ignoring short-term dynamics and intra-annual fluctuations explains the much higher risk aversion from low-frequency consumption measures.
Portfolio Decisions with Nonlinear Dependence in Labor and Stock Markets (with Wei Jiang and Shize Li)
Research Excellence Award at 2024 CIRF & CFRI Conference
Nonlinear dependence measures extreme values jointly occurring in the labor and stock markets. Using data from the Panel Study of Income Dynamics, we document that a nonlinear dependence between labor and stock markets exists, and households adjust their portfolio decisions in response to this nonlinear dependence risk. A mean-variance-skewness-kurtosis model shows that nonlinear dependence affects households' wealth risk profile via the skewness and kurtosis channels, forcing households to lower their risk exposures. Using a quantitative, calibrated life-cycle model, we show including nonlinear dependence could reduce households' risky shares by 28% and increases participation thresholds by 22%. Moreover, counterfactual studies show that ignoring nonlinear dependence could generate certainty equivalent wealth losses of 3% and increase wealth inequality, as measured by the Gini index, by 2.7%.
Reverse Mortgages, Housing and Consumption: An Equilibrium Approach (with Shize Li and Ariel Sun) (New draft coming soon!)
Best Paper Award in Financial Institutions at 2024 FMA Asia/Pacific Conference
Reverse Mortgages (RMs) enable eligible homeowners 62 years and older access to the liquidity of their home without them moving out or repaying before loan termination when the borrowers die or move to long-term care facilities. We incorporate RMs into a quantitative equilibrium life-cycle model to assess their impacts on household decisions, the mortgage and the housing market. We show that retired RM borrowers experience significantly enhanced consumption smoothing. Additionally, the presence of RMs in the mortgage market enhances the house's perceived value to households, making homeownership a more financially attractive option and stimulating housing demand. These effects increase overall household welfare in our model, highlighting the positive impact of RMs.
Homeownership as Lifecycle Goldmine: Evidence from Macrohistory (with Yang Bai and Shize Li)
Should a household buy a home? Using data from 18 developed countries spanning 1870 to 2020, our analysis provides a resounding affirmative answer. Contrary to popular expert advice, we find that homeownership substantially enhances wealth. Homeowners can experience a net lifetime wealth increase of up to 358% with a significant welfare gain of at most 62%, compared to renters who invest exclusively in stocks. Such benefits only cost a minor consumption loss during working years. Our results also emphasize the importance of leverage and purchasing timing: cash purchases highly reduce housing benefits. In addition, the benefits do not extend to owning a second home. From a macrohistorical perspective, while purchasing a primary residence can be highly lucrative, acquiring a second home does not yield the same benefits.
We propose a stochastic control model to study corporate investment decisions with different investment frictions, including investment lags and the opportunity cost of adjustment. We find that the dominance of the ''bad news principle'' or ''good news principle'' is determined by the joint effect of investment lags and adjustment costs, reconciling the results in Bernanke (1983) and Bar-Ilan and Strange (1996). Meanwhile, we resolve disputes between the NPV rule and the real option method of making investment decisions, and we find that the accuracy of the NPV rule depends on investment lags and the opportunity cost of adjustment. Moreover, we calibrate our model with firm-level data and show that the co-existence of investment lags and the opportunity cost of adjustment is the key to explain the correlation between lagged investment and firms' productivity.
Uninsurable labor income risks fluctuate considerably over time, and it is important to understand how these fluctuations affect households' consumption decisions. Using the Panel Study of Income Dynamics, I investigate the response of household consumption to countercyclical labor income risks. I estimate the larger effect of countercyclical labor income shocks on consumption for stockholders than nonstockholders, as stockholders are more easily to reduce their consumption on unnecessary goods to offset negative earnings shocks during recessions. This effect is also persistent. Moreover, stockholders are more likely to be self-employed and work in finance industry than nonstockholders. Households who are self-employed or working in finance industry react to labor income risks more intensely, suggesting that self-employment and industry choices might also drive the heterogeneity across stockholders and nonstockholders.
Work in Progress:
Marriage-related Tax, Labor Supply, and Portfolio Decisions
Asset Pricing with Nonlinear Dependence in Labor and Stock Markets (with Wei Jiang and Shize Li)
Quantitative Model of Solar Panels, Solar Loans, and Housing (with Dong Ho Kang and Jingjing Sun)
Artificial Intelligence and Product Innovation (with Yue Qiu and Ruixiang Wang)
A Lifecycle Model of Private Foundation (with Zhongjin Lu and Huijun Wang)
Remote Work and Labor Reallocation (with Yue Qiu, Mo Shen and Huijun Wang)
Countercyclical Earnings Risk and Consumption over the Life Cycle with Non-homothetic Utility
Report abuse