Working papers

Leverage Constraints Affect Portfolio Choice: Evidence from Closed-End Funds (SSRN)

with Petri Jylhä (Journal of Financial Economics - Revise and Resubmit)

 The market for auction rate securities collapsed in February 2008, significantly increasing some closed-end funds' cost of funding. The affected funds reacted by moving to a leverage-constrained funding structure. We present a model that explains this fund behavior and then use the event as a quasi-natural experiment to study empirically how leverage constraints affect investors' portfolio choices. Consistent with our model's predictions, we show that becoming leverage-constrained results in an increased appetite for systematic risk: in the months following the shock, the affected funds increased their portfolio betas by buying significantly more high-beta stocks than their unaffected peers.


Household Wealth and Local Labor Markets: Which Asset Classes Matter? ( SSRN, Internet Appendix)

Household wealth effects are heterogeneous between asset classes due to concentrated asset ownership between household groups with plausibly different marginal propensities to consume. However, wealth effect estimates between asset classes across studies are hard to compare. Using a new county-level data set on U.S. household asset and debt positions I estimate wealth effects on payroll and employment simultaneously for five important asset classes. Using Bartik instruments for identification, I find large dynamic wealth effects from local house price shocks and mortgage rate shocks, and small effects from stock market wealth shocks. A model with heterogeneous agents motivates the empirical analysis.


Equity Wealth Cycles (SSRN)

This paper documents that in many countries the ratio of equity wealth to other (non-equity) wealth (EO-ratio) has moved in low-frequency cycles between 1873 to 2020. First, I find that a high (low) level of EO-ratio strongly predicts low (high) future stock market returns, and using two novel present value decompositions I show that both differences in valuation- and payouts contribute to these cycles---but differently in the U.S. versus abroad. Second, I build a quantitative macro-finance model with limited participation, redistributive income shocks, and inflation and show that these factors can explain up to 80% of these cycles.


Publications

Non-Stadard Errors (SSRN)

with many many coauthors (Journal of Finance - 2024)

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants. 


Long-run asset returns

with Elroy Dimson, David Chambers and Antti Ilmanen (Annual Review of Financial Economics - In press)

The literature on long-run asset returns has continued to grow steadily, particularly since the start of the new millennium. We survey this expanding body of evidence on historical return premia across the major asset classes – stocks, bonds, and real assets – over the very long-run. In addition, we discuss the benefits and pitfalls of these long-run datasets and make suggestions on best practice in compiling and using such data. We report the magnitude of these risk premia over the current and previous two centuries, and we compare estimates from alternative data compilers. We conclude by proposing some promising directions for future research.