Working Papers

Luxury Consumption and Municipal Bond

Abstract: This paper incorporates a default term and a novel measure of high-net-worth individuals’ consumption into an affine model to address the muni-bond puzzle, narrowing the yield spread between long-term municipal and tax-adjusted Treasury bonds from 192.4 bps using the observed municipal bond yield to 5.7 bps with the model-implied yield. The remaining yield disparity is primarily influenced by state GDP. Interactions between state GDP with migration patterns, job opportunities, and educational attainment further reduce pricing discrepancies in the municipal bond market.

Presentations: Financial Management Association (2025, scheduled), University of Guelph, The University of Iowa.

Private Sector Earnings and Public Financing Costs   [SSRN]

Abstract: This paper demonstrates that local business prosperity reduces bond yield spreads in the municipal bond market, primarily attributed to expanded tax revenues. This effect is pronounced among issuers of high-rated, short-maturity municipal bonds, and in communities characterized by low political divergence and high debt payment ratios. Moreover, I identify two spillover effects: the influence of local business markets on both the real estate and labor markets, and the transfer of credit risk from local municipalities to state governments.

Presentations: Eastern Finance Association (2025), Financial Management Association (2024), Urban Economic Association (2023), The University of Iowa.

Earnings Management in Local Governments  with Erik Lie, Tyler S. Menzer  [SSRN]

Abstract: This study examines the influence of earnings management on municipal bond ratings among U.S. local governments, particularly in the context of GASB 14 and GASB 34. Our findings indicate that municipalities engage in strategic financial reporting to improve their bond ratings, with frequent small increases in net income leading to an enhancement of 0.086 notches in initial bond ratings and 0.099 notches in total bond ratings. The effect is significantly magnified by six times when financial statements are disclosed prior to bond rating dates. Given that investors are inclined to hold bonds with high ratings, our analysis reveals that improved bond ratings, especially initial bond ratings, lead to high trading yields in the secondary market.

Presentations: The University of Iowa.

Analyst Dispersion and Political Dispersion  with Amrita Nain, James Xu  [SSRN]

Abstract: We study the impact of political polarization on investor disagreement. Using continuous, time-varying measures of ideological leanings of U.S. state legislators on the liberal-conservative scale, we show that greater political polarization in a state leads to greater dispersion in earnings forecasts of analysts located in that state. This effect is stronger for firms in politically sensitive industries and firms that commit significant resources to social issues. We use an M&A setting to document the importance of our finding for investors. Acquirers exposed to more polarized analysts earn significantly lower announcement returns for equity offers but not for all-cash acquisitions. These findings are consistent with models in which greater diversity of opinion among investors leads to steeper demand curves for stocks.

Presentations: 2025 Silicon Prairie Finance Conference, 2025 SFS Cavalcade North America, Eastern Finance Association, University of Texas at San Antonio, The University of Iowa.