Stock Comovement and Financial Flexibility
with Anil Kumar, Stefano Sacchetto, and Carles Vergara-Alert [SSRN]
Journal of Financial and Quantitative Analysis, 2024, 59(3), 1141-1184
The Heterogeneous Effects of Financial Wealth on Housing Demand
with Christian Eufinger
Presentations: AFA 2026 JFMP Workshop, Philadelphia; 2nd Boca Finance and Real Estate Conference, Boca Raton; 32nd AEFIN Finance Forum, Pamplona*; FMA European Conference 2025, Limassol; NEOMA Business School Brownbag (2024)
Abstract: We document the connection between equity markets and local housing markets in the United States through the channel of household financial wealth. Equity market fluctuations affect household financial wealth and subsequently housing demand. Household financial wealth exposes local housing markets to equity market risks, increases housing market betas, expected housing returns, and drives up the comovement between local housing and equity markets. Households exhibit heterogeneous housing demand elasticities with respect to financial wealth, which rise with income levels---thereby amplifying housing inequality during market upswings. Overall, our findings highlight financial wealth as a key driver of local housing market integration and heterogeneous household asset allocation behavior as a major contributor to housing inequality.
Bonding with Risk: Corporate Investment and Savings in Risky Financial Assets
with Stefano Sacchetto
2nd Round Revise and Resubmit, Journal of Financial Economics
Presentations: EUROFIDAI-ESSEC Paris December Finance Meeting 2024, Paris*; LBS Economics Alumni Conference 2024, LBS*; DGF 2024, Aachen; FMA European Conference 2024, Turin*; Workshop on Horizon Risks and Corporate Policies (2022), Collegio Carlo Alberto; EFMA 2022, Rome*; MFA 2021 (Virtual), Chicago*; AFA 2021 Poster Session (Virtual), Chicago; CAFM 2020 Doctoral Student Workshop (Virtual), Seoul; FMA 2020 (Virtual), New York; EFA 2020 (Virtual), Helsinki; HEC Paris (2024)*; Nova School of Business and Economics (2024)*; CUNEF University (2024)*; LUISS Guido Carli University (2020); EM Lyon Business School (2020); IESE Business School Brownbag (2019)
Abstract: We study the rationale behind firms’ investment in risky financial assets by formulating a dynamic model in which firms allocate their precautionary savings to both safe and risky securities. In equilibrium, risky financial asset holdings are positively related to the sensitivity of a firm's financing deficit to the risky asset returns---the "financing deficit beta." Using a comprehensive sample of US corporate financial asset holdings, we find evidence of a positive correlation between risky financial asset holdings and financing deficit betas that capture firms’ incentives to hedge medium-to-long term interest-rate risk. Precautionary motives are stronger in small and R&D-intensive firms.
Bank Monopsony Power and Stock Market Spillovers on Deposit Markets
Under Review
Presentations: EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Paris; EFA 2023 Poster Session, Amsterdam; EARIE 2022, Vienna; FMA European Conference 2022, Lyon; BFWG 15th Annual Conference (2022), Queen Mary University of London; FMCG 2022 (Virtual), Monash University; University of Gothenburg (2023); University of Bristol (2023); Erasmus University Rotterdam (2023); University of Guelph (2023); NHH Norwegian School of Economics (2023); NEOMA Business School (2023); HEC Lausanne Brownbag (2022); IESE Business School Brownbag (2022); LUISS Guido Carli University Brownbag (2022)
Abstract: Households exhibit "return chasing" behavior in the stock market, so stock market performance induces fluctuations in deposit supply. Using stock market performance as a shock to deposit supply, we trace out the relationship between bank market power and deposit demand elasticity. Bank market power leads to inelastic deposit demand, which attenuates the spillover effects of the stock market on local deposit markets. Counties with high bank market power also experience smaller declines in small business and mortgage lending following market upswings. Overall, our results suggest that bank market power insulates and stabilizes local deposit and lending markets from stock market fluctuations.