Jialu Shen 沈佳璐

Assistant Professor of Finance at University of Missouri Trulaske College of Business

Research Interests: Household Finance, Asset Pricing and Portfolio Allocation

E-Mail: jshen at missouri.edu

Publications:

Best PhD Paper Award at 2018 EFMA Annual Meeting

Doctoral Student Travel Grants at 2019 MFA Annual Meeting

Working papers:

Best Paper in Finance at 2023 Financial Management and Accounting Research Conference

Semi-finalist for Best Paper Award at 2022 FMA Annual Meeting

We show that incorporating defined benefit pension funds in an asset pricing model with incomplete markets improves its ability to jointly match the historical equity premium and riskless rate, and has important implications for risk sharing. We emphasize the importance of the pension fund's size and asset demands in determining equilibrium asset prices and discuss a new risk channel arising from fluctuations in the fund's endowment. We use our calibrated model to study the implications of a shift from an economy with defined benefit pension schemes to one with defined contribution plans. We find that the new steady-state is characterized by a higher riskless rate and a lower equity premium. Consumption volatility increases for retirees but decreases for workers.


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.


Research Excellence Awards 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 (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.


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: