Who Buys High and Sells Low: Trading against Expected Returns and Wealth Inequality

Paper, Online Appendix,  SSRN

Theories are ambiguous about whether households of higher or lower wealth consistently trade against expected returns. I employ unique matched data on US household trades in the housing market and their wealth to study trade timings and quantify the impact on portfolio returns and wealth inequality. I find that poorer households consistently buy houses when expected returns are low (e.g., after price increases) and sell when expected returns are high (e.g., after price declines). The estimated dispersion in expected portfolio returns from active trades is large, with an interquartile range across the wealth distribution of 65 basis points per year.

An earlier version circulated under the title “Cyclical Transactions and Wealth Inequality.” 

Media: Business Insider, Bloomberg, Hutchins

Bank Branch Access: Evidence from Geolocation Data (with Alexander K. Zentefis)

SSRN, Paper, Online Appendix, Supplementary Material

Low-income and Black households are less likely to visit bank branches than high-income and White households, despite the former two groups appearing to rely more on branches as means of bank participation. We assess whether unequal branch access can explain that disparity. We propose a measure of bank branch access based on a gravity model of consumer trips to bank branches, estimated using mobile device geolocation data. Residents have better branch access if branches are closer or have superior qualities that attract more visitors. Because the geolocation data is distorted to protect user privacy, we estimate the gravity model with a new econometric method that adapts the Method of Simulated Moments to handle high-dimensional fixed effects. We find no evidence that low-income communities lack access to bank branches and instead find that lower demand for bank branch products or services explains their lower branch use. But in Black communities, worse access explains their entire drop-off in branch use. For residents of these areas, weaker access is not from having lower quality branches, but from branches being located farther away from them. The results highlight parts of the country that would benefit the most from policies that expand access to banking.

Media: Yale Insights, Economic Mobility Project

The Effect of Minority Bank Ownership on Minority Credit (with Agustin Hurtado)


We study the effect of racial minority bank ownership on minority credit access. Using new data for 87 million minority borrowers, we present four main findings. First, minority-owned banks specialize in same-race mortgage lending. Over 70 percent of their mortgages go to borrowers of bank owners' same race. Second, the effect of minority bank ownership on minority credit is large and exceeds that of minority loan officers. We find that minority borrowers applying for mortgages in banks whose owners are of the same minority group are nine percentage points more likely to be approved than minority borrowers in non-minority banks. This effect is over six times that of a minority loan officer. Third, the default rate of minority banks' same-race borrowers is much lower than that of otherwise-identical borrowers of other races, and Asian banks drive this difference. Fourth, evidence from plausibly exogenous bank collapses suggests that the effect of Asian bank ownership might reflect an expansion rather than a reallocation of credit to Asian borrowers. Our findings are consistent with minority bank ownership reducing information frictions and improving credit allocations.

Effect of Black Electoral Victories on Racial Bias and Economic Gaps

(R&R, Journal of Public Economics)

SSRN, Paper, Online Appendix

Do Black electoral victories impact White Americans’ racial bias? I use explicitly elicited racial preferences and Race Implicit Attitude Test scores to measure racial bias, construct a novel data set on local elections that identifies candidates’ perceived racial groups, and implement a close-election regression-discontinuity design for causal inference. Black electoral victories cause both implicit and explicit measures of racial bias to rise. Simultaneously, they widen racial gaps in unemployment and mortgage denials.

Human Capital in a Time of Low Interest Rates (with Paymon Khorrami)


We argue that a long-term low interest rate environment can cause labor income inequality, the emergence of the working rich, and reduced intergenerational mobility. We provide a simple model with endogenous human capital accumulation and credit constraints to demonstrate this causal link. The mechanism operates through a tilting of the human capital gradient: wealthy households, more so than poor households, will increase human capital investment in response to low rates. Normatively, these tilting responses to low rates are inefficient, but higher capital taxes is not an ideal response. We find empirical support for our tilting mechanism over the last 60 years in the US. Quantitatively, we show that the endogenous human capital investment response to low interest rates can account for a 17% rise in cross-sectional labor income variance (higher inequality) and a 7% higher parent-child labor income inter-generational elasticity (lower mobility).

Intergenerational Elasticity of Consumption and Income (with Lancelot Henry de Frahan)


We estimate the intergenerational elasticity (IGE) of consumption and income. As a complementary analysis to income IGE, consumption mobility is a closer measure of welfare mobility, and comparisons with income IGE are informative about intergenerational consumption insurance (in a frictionless, dynastic benchmark, the consumption IGE is one). Using surnames as links, we merge income and home values from the 1940 full-count Census to today’s home value as a proxy for consumption along with income. From surname-level correlations, we infer a family-level consumption IGE of 0.74 per generation, higher than that of income. To arrive at these results, we formalize the inference of family-level IGE from surname-level data and adjust for two key sources of bias: ecological inference and immigration. We interpret the estimated consumption IGE through intergenerational Euler equations.

Effect of Ownership Composition on Property Prices and Rents:
Evidence from Chinese Investment Boom in US Housing Markets

SSRN, Paper, Online Appendix

A capital influx into local housing markets would be expected to increase house prices, but the spillover effect onto rental prices is theoretically ambiguous. I estimate both price impacts in U.S. residential housing markets using data from a boom in real estate purchases by buyers from China, which amounted to $200 billion of purchases made between 2010 and 2019. Using a novel method to measure these purchases and an instrumental variable for where purchases are made, I find a large positive house price impact. Consistent with investment q-theory, rents fall as constructions rise, especially in areas with elastic housing supply.


Market Power as Skin-in-the-Game (with Paymon Khorrami)

We show that, when households have mistaken beliefs or less information, intermediary market power can limit over-investment, improve resource allocation, and reduce asset price volatility. If intermediaries are compensated based on their returns, market power increases their compensation, leading to better incentives to invest according to the social good. The results are analogous if intermediaries are compensated based on assets under management in a dynamic world: market power creates skin-in-the-game incentives, even if they are absent in the contract. We devise a series of empirical tests, in both finance and non-finance arenas, as to the interacting effects of household irrationality and intermediary competition.

Impact of Economic Condition on Racial Prejudice

Does deteriorating economic condition cause racial prejudice to rise? Despite psychological/sociological microfoundations and multiple economic implications of the inferiority of racial prejudice, empirical evidence has been inconclusive. This paper constructs better-powered measures of local areas' racial prejudice using Google searches for racial slur and "KKK," white-on-black non-pecuniary crime, survey responses and corporal punishment at school. Across these measures, racial prejudice correlates negatively with the local economic condition. Using predictors of local economic condition in the 2000s, I show that the relationship is causal: lower income causes higher racial prejudice in the area. 


Closing Racial Economic Gaps during and after COVID-19 (with Jane Dokko) In The Pandemic Divide: How COVID Increased Inequality in America, edited by Gwendolyn L. Wright, Lucas Hubbard and William A. Darity, 2022, pp. 210-230

Which Early Withdrawal Penalty Attracts the Most Deposits to a Commitment Savings Account? (with John Beshears, James Choi, Christopher Harris, David Laibson and Brigitte Madrian) Journal of Public Economics, 2020, 183 

Paper, Online Appendix, Link to published version 

Media: The Atlantic, WSJ