Working papers

Railroad Bailouts in the Great Depression (with Lyndon Moore)

The Reconstruction Finance Corporation and Public Works Administration loaned 45 railroads over $802 million between 1932 and 1939. The government’s goal was to decrease the likelihood of bond defaults and increase employment. Bailed-out railroads did not increase profitability or employment. Instead, they reduced leverage. Bailing out a railroad had little effect on its stock price, but it resulted in an increase in its bond prices and reduced the likelihood of a ratings downgrade. However, bailouts did not help railroads avoid defaulting on their debt. We find some evidence that manufacturing firms located close to railroads benefited from the bailouts.

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News coverage: De Tijd and Trends

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 vis-à-vis those with low exposure in bad economic times, for example, periods when stock market variance is above its median. This is consistent with time-varying investor preferences, highlighting the increase in the demand for stocks that offer a hedge against dependence risk in bad times. Importantly, the MFID premium holds in the classic risk factor zoo, among other asset classes, when we adjust the benchmark for bad economic times, and when we control for option-implied correlation.


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, accepted

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The Effect of War Risk on Managerial and Investor Behavior: Evidence From the Brussels Stock Exchange in the Pre-1914 Era

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

News coverage: Investor Amnesia, Knack, and EHS - The Long Run (earlier versions)

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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

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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

News coverage: Investor Amnesia and Trends

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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, 2019, Volume 33

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Non-refereed publications

Public Health Crises, Product Pricing, and Risk Management: U.S. Life Insurance during the 1918–19 Influenza Pandemic (with Gustavo 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 firms charged higher prices on new policies vis-à-vis less exposed firms. Since the pandemic surprisingly increased mortality rates among young adults, we argue that insurers used product pricing as a risk management tool to mitigate the probability of financial distress. Consistent with this channel, health shocks significantly impact firms’ exit and entry decisions depending on a state’s exposure to the disease. Finally, we show that competing explanations for the observed price differences find little support from the data.

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EBES Best Paper Runner Up Award

News coverage: Bloomberg

Econ Coffee Simulator, KU Leuven FEB Talk, and Video summary

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, 2022

Is onvoldoende kiezen verliezen? Diversificatie en beleggen in crisisperiodes sinds de oprichting van België

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 Bonus

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