Research
Working papers
Railroad Bailouts in the Great Depression (with Lyndon Moore)
The Reconstruction Finance Corporation and Public Works Administration loaned 50 U.S. railroads over $1.1 billion between 1932 and 1939. The government’s goal was to decrease the likelihood of bond defaults and increase employment. Bailouts had little effect on employment, instead, they increased the average wage of their employees. Bailouts reduced leverage but did not significantly impact bond default. Overall, bailing out railroads had little effect on their stock prices, but resulted in an increase in their bond prices and reduced the likelihood of ratings downgrades. We find some evidence that manufacturing firms located close to railroads benefited from bailout spillovers.
Revise & Resubmit, the Journal of Economic History (1st round)
News coverage: De Tijd, EABH Podcast, La Libre Belgique, Trends, and VRT NWS
Risk Management in Deadly Times: The U.S. Life Insurance Industry in the 1918-19 Influenza Pandemic (with Gustavo S. Cortes)
Using a novel, hand-collected dataset of U.S. life insurance companies during the Influenza Pandemic of 1918–19, we show that high-exposure life insurers charged higher prices on new policies vis-à-vis less exposed firms. Although the disease surprisingly increased the mortality rates among younger adults, it also increased awareness of the importance of life insurance. We argue that price increases were a crucial risk management tool. Coupled with a surge in demand and coverage, it prevented further financial distress. While devastating for public health, the Influenza Pandemic was not too severe for the life insurance industry.
Revise & Resubmit, Economic History Review (3nd round)
EBES Best Paper Runner-Up Award
News coverage: Bloomberg
Video coverage: Econ Coffee Simulator, KU Leuven FEB Talk, and Video Summary
Selection Neglect and the Cross-Section of Wine Returns (with Robbe van Tillo)
We examine the concept of selection neglect – a behavioral tendency characterized by decision-making on biased observations. Using a dataset of more than 3 million wine auction transactions, we highlight that investors experience expected utility losses by suffering from selection neglect. Wines more exposed to this bias exhibit higher future returns than those in lower quintiles. The effect is stronger for wines lacking salient features, are more illiquid, have more time to expiration, and more idiosyncratic risks. Exploring the international heterogeneity in the data, we argue that negligent investors ignore data rather than lack understanding.
News coverage: Financial Times and HLN
Video coverage: WineFi Podcast
Volatility Laundering: On the Feasibility of Wine Investment Funds
Volatility laundering is the attempt to make the risks of investments appear lower than they are, potentially misleading investors and counterparties. I highlight that this is a very harmful phenomenon, particularly in undermining the feasibility of wine investment funds. If fund managers provide selection-corrected returns (free of volatility laundering) compared to biased returns, I argue there would likely be limited interest in wine investment fund structures. If managers apply the wrong returns to select wines, their potential losses can be larger than their gains.
Publications
Economic History
Banking on Innovation: Listed and Non-listed Equity Investing, Evidence from Société Générale de Belgique, 1850-1934 (with Marc Deloof)
Société Générale de Belgique was the world’s first universal bank. They pioneered another innovation: investing in non-listed equity. Using hand-collected data, we show they earned significant positive risk-adjusted returns from 1850 to 1934. This offset the flat performance of listed equity or the underperforming bond portfolio. Other Belgian universal banks followed this strategy. As such, we argue that this innovation laid the groundwork for other financial institutions to invest in listed and non-listed assets.
Explorations in Economic History, 2024
News coverage: VFB - De Beste Belegger
Scuttle for Shelter: Investor Flight-to-Safety and Political Uncertainty during the Spanish Second Republic (with Stefano Battilossi & Stefan Houpt)
The Spanish Second Republic was a unique experiment of democratization in interwar Spain, which was characterized by extreme levels of political uncertainty. In response to this uncertainty, we find that investors sold stocks in favor of government bonds. In fact, political uncertainty had a negative effect on the aggregate stock market index, a positive effect on stock market volatility, and significant differences in the cross-section of stock return, consistent with their exposure to the uncertainty. This suggests that Spanish investors did not seem to perceive a soviet-style social revolution as a credible threat.
European Review of Economic History, 2022, Volume 26, Issue 3, pp. 423–447
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Go Active or Stay Passive: Investment Trust, Financial Innovation and Diversification in Belgium's early days (with Jan Annaert)
In 1836, Société Générale created the world’s first closed-end equity fund, Mutualité Industrielle. It promised to be a diversification tool targeted towards less-wealthy investors. We confirm that the trust’s returns were indeed better than returns on synthetic portfolios such investors had access to. However, it never became a commercial success. This paper presents a possible rational explanation why this innovation was liquidated in 1873. First, we show that the trust offered a performance similar to randomly-selected portfolios. Second, portfolio strategies to which mostly wealthy and sophisticated investors had access were able to outperform the trust. Mutualité Industrielle’s failure to offer a sufficiently attractive alternative to investors is consistent with its difficulty to attract sufficient funds to keep the trust in business.
Explorations in Economic History, 2021, Volume 79
News coverage: Investor Amnesia and Trends
With two news-based measures on war, I document that managers mitigated war risk through dividend cuts, arguably to establish a war chest. Moreover, I find that companies postponed their initial public offerings and that foreign companies were more likely to delist after the onset of wars. Investors reacted negatively to the increase in war news coverage. There is evidence of mean-reversion after a threat of war and a negative drift following an act of war. Finally, I highlight the importance of proximity to military conflicts and thus question the existence of an empire effect on the BSE.
Journal of Economic History, 2020, Volume 80, Issue 3, pp. 629-669 (lead article)
News coverage: Investor Amnesia, Knack, and EHS - The Long Run (earlier versions)
Asset Pricing
Dividend growth and return predictability: a long-run re-examination of conventional wisdom (with Jan Annaert and Marc Deloof)
We re-examine dividend growth and return predictability evidence using 165 years of data from the Brussels Stock Exchange. The conventional wisdom holds that time-varying dividend yield is predominately explained by changes in expected returns and that expected dividend growth is only weakly forecastable. However, we find robust dividend growth predictability evidence in every time period. A lack of dividend smoothing is the most important reason for the disconnect from previous evidence. Furthermore, we find return predictability in the post-World War II period when we adjust the dividend yields for changing index composition, business cycle variation, and structural breaks. This is explained by a simultaneous increase in equity duration, induced by an increasing importance of growth stocks.
Journal of Empirical Finance, 2019, volume 52, pp. 112-127
News coverage: Trends, Investment Officer, and Investor Amnesia
Other Publications
Belgium Crises in the Pre-World War I Era
Since the revolution of Belgium between 1830-1831 (and its subsequent independence in 1832), there have been a number of financial crises in Belgium. Although every crisis “is a crisis in its own way”, most of their origins can be found in military conflicts: 1838-1840 (tension between Belgium and the Netherlands), 1870-1876 (the Franco-Prussian War), and 1914 (World War I). Two exceptions are 1885 and 1900, which are generally defined as banking crises (e.g. Baron et al., 2021; Buyst and Maes, 2007). Nevertheless, we focus on the three crises that arguably shaped the Belgian economy the most, that is, 1838, 1870, and 1914.
Financial Crises Encyclopedia, 2023
Beleggingsleer toont aan dat diversificatie het idiosyncratisch risico van aandelenportefeuilles vermindert of zelfs elimineert. Echter, de meerderheid van beleggers heeft een beperkt aantal aandelen in hun portefeuille. Uit de academische literatuur blijkt dat dit sinds de 19de eeuw van toepassing is en ook vandaag nog steeds geldt. Een verklaring is een gebrek aan financiële kennis, het overschatten van kennis en capaciteiten of een gebrek aan (inanciële middelen. De COVID-19 pandemie – met een daling van aandelenkoersen van meer dan 20%, in het begin van maart 2020 – zorgde ervoor dat beleggers op een andere manier naar hun portefeuille kijken. Diversificatie won terug in belangrijkheid. Maar is dit wel terecht? Is onvoldoende kiezen verliezen?
Bank- en Financiewezen, 2021
Model-Free Implied Dependence and the Cross-Section of Expected Returns (with Koen Inghelbrecht, Daniël Linders, and Yong Xie)
We document the asset-pricing implications of the model-free option-implied dependence (MFID), a measure that exhibits information on linear and non-linear dependence between random variables. We show that stocks with high exposure to MFID generate significantly higher risk-adjusted returns in bad times. This is robust when we condition on correlation and other risk factors. This suggests that the non-linear component mainly drives the observed outperformance. The evidence is consistent with time-varying preferences, implying an increased demand for assets that offer a hedge in bad times.
Is fertility a leading indicator for stock returns?
If fertility behavior is closely related to business cycle behavior, there should be evidence in financial markets. I document that a decrease in fertility growth negatively forecasts real excess returns, several months ahead. More interestingly, this effect is not yet captured by demographic, business cycle or confidence metrics. The relationship is robust in specific subsamples. Overall, this suggests that fertility growth is a leading indicator for recessions.
Finance Research Letters, 2020, Volume 33