Publications
Publications
Optimal Retirement Savings over the Life Cycle: A Deterministic Analysis in Closed Form (joint with Marcel Fischer and Bjarne Astrup Jensen)
published in Insurance: Mathematics and Economics, 2023, vol. 112, pages 48-58
Abstract: In this paper, we explore the life cycle consumption-savings problem in a stylized model with a risk-free investment opportunity, a tax-deferred retirement account, and deterministic labor income. Our closed form solutions show that liquidity constraints can be severely binding; in particular in situations with a high growth rate of labor income, in which retirement saving is optimally postponed. With a tax-deferred account, it is always optimal to save in this (illiquid) account first before saving in the (liquid) taxable account in order to satisfy the needs for consumption smoothing. The optimal retirement savings pattern is far from the widespread practice of contributing a fixed fraction of current labor income over the working life to a tax-deferred environment.
Key Words: retirement saving, tax-deferred investing, borrowing constraints, labor income, analytical solution
JEL Classification Codes: E21, G11, H23
Heuristic Portfolio Rules with Labor Income (joint with Marcel Fischer)
published in European Journal of Finance, vol. 31(11), pages 1426-1444
Abstract: We propose a heuristic portfolio rule, which significantly simplifies individuals' asset allocation decisions over the life cycle. Under this heuristic, equity exposure is a linear function of the individual's labor-to-wealth ratio and age. When individuals follow our heuristic, welfare gains when switching to the optimal policy are only 0.35% of lifetime consumption (around USD 9,800). Relative to portfolio strategies used by individuals in the data, welfare gains from using our heuristic are about 2.2% (around USD 61,600). Our results are robust to different educational attainments and family structures.
Key Words: consumption-savings decisions, heuristic portfolio choice, life cycle model, household finance
JEL Classification Codes: E21, G11
Working Paper
Mandatory Pension Saving and Homeownership (joint with Marcel Fischer and Bjarne Astrup Jensen)
R&R at Journal of Financial and Quantitative Analysis (JFQA)
Abstract: We explore the implications of mandatory minimum contributions to tax-deferred retirement accounts over the life cycle. These contributions defer housing market entry and increase loan-to-value ratios. We propose a flexible retirement saving scheme that does not force individuals to build up savings in a tax-deferred retirement account and only requires them to save in either a taxable account, a tax-deferred retirement account, or through home equity if they are undersaving. This flexible retirement saving scheme largely alleviates the unintended side effects of mandatory minimum contributions and simultaneously ensures that individuals build up sufficient savings for retirement.
Key Words: retirement saving, homeownership, pension system design, loan-to-value ratio, housing market entry
JEL Classification Codes: E21, G11, H23
Reputation and Asset Prices: Evidence from Trump Real Estate (joint with Simon Stehle and Rémi Vivès)
R&R at Financial Management
Abstract: We analyze the impact of brand reputation on asset prices by exploiting the prominence of Donald Trump in Manhattan real estate. Our quasi-experiment identifies a 19% discount to condominiums in Trump-branded buildings after controversies surrounding Trump's presidential candidacy began in June 2015 up to 2022. The shock is immediately priced in the second half of 2015 and appears sufficiently large to prevent a liquidity shock. We create a monthly indicator of Trump's negative reputation in New York City using Twitter data and find that a one-standard-deviation increase in our indicator predicts a 6% price discount to branded units. Property assessment data indicates no tax benefits to owners of branded condominiums but imply a $1.1 billion decline in their properties' values. Overall, our results show that reputation shocks can be large and persistent and that reputational risk should be taken into account by risk managers.
Key Words: Trump, real estate, reputation, quasi-experiment, Twitter data
JEL Classification Codes: G41, R32, C21
Fractional Homeownership and its Impact on Life Cycle Portfolio Choice (single-authored paper)
Abstract: Using a quantitative life cycle model, we study the impact of access to fractional homeownership on individuals' optimal consumption, savings, and housing decisions. Fractional homeownership means that two parties - an individual and an institutional investor - share full ownership of a property. The individual lives in the property full-time and makes periodic rent payments to the institutional investor who sees the property solely as an investment vehicle. We find that access to fractional homeownership is most attractive to particularly young and old individuals. Further, it leads to earlier housing market entry, later housing market exit, decreases individuals' loan-to-value ratios and reduces their moving activity at old age; all in comparison to a setting in which the individuals' rent-versus-own decisions are binary.
Key Words: fractional homeownership, housing decisions, loan-to-value ratio, life cycle model, portfolio choice
JEL Classification Codes: D15, E21, G11, G21
Going Solo or Waiting for Love? Relationship and Housing Choices in a Life Cycle Model (joint with Natascha Jankowski)
Abstract: Using a quantitative life cycle model of optimal consumption, savings, housing, and relationship decisions, we investigate how capital, housing, and labor market conditions influence the timing of individuals' relationship and housing choices. We find that capital and labor market returns significantly impact whether individuals should go solo in the housing market or wait for love and buy when in a relationship. Moreover, we show that entering the housing market as a single or in a relationship leads to substantially different life cycle profiles of wealth, consumption, asset allocation, and housing. These differences arise because single individuals and those in a relationship experience capital and housing market returns differently.
Key Words: endogenous housing and relationship decisions, life cycle model, long-term financial decision making, portfolio choice, financial market returns
JEL Classification Codes: D15, E21, G11
Work in Progress
Mortgage Default in UK Shared Homeownership Contracts (joint with Damian Damianov and Stanimira Milcheva)
Energy Consumption and Household Portfolio Choice (joint with Carina Fleischer and Christoph Hambel)