Ph.D. Candidate in Financial Economics
Yale University, School of Management
135 Prospect Street
New Haven, CT
Empirical Asset Pricing, Investments, Behavioral Finance, Real Estate, Financial Institutions, Market Microstructure, Corporate Finance
Subjective Home Valuations and the Cross-Section of Housing Returns (JOB MARKET PAPER)
This paper studies the cross-sectional effects of valuation bias in the largest U.S. market dominated by unsophisticated investors and limits to arbitrage – residential real estate. Using a combination of weather and health in a novel identification strategy along with nationally representative survey responses from 1968 to present, I test whether household optimism affects residential housing returns. I find that housing markets with a higher proportion of homeowners who overestimate home prices experience greater booms during market expansions, but also bust more severely during subsequent contractions. These overvaluations lead to more conservative leverage (loan-to-value) ratios but weaker affordability (loan-to-income) ratios, stretching borrowers and increasing market fragility.
Causal relationships between institutional investors and equity market liquidity are elusive because rational, sophisticated investors produce private information, trade strategically, and endogenously respond to expected market conditions. I estimate the effect of different institutional investors on liquidity and asset prices by studying market movements catalyzed by an event which is free from endogeneity concerns – the terrorist attacks in New York City (NYC) on September 11th, 2001. In the days following these attacks, stocks held by mutual funds based in NYC experienced a strong and significant decline in liquidity. Those held by NYC based hedge funds, however, saw weak improvements. I show these results are driven by significant differences in both the heterogeneity and precision of private information across institutional types, consistent with theories of trading behavior in the presence of asymmetric information.
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