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Betermier, Sebastien; Calvet, Laurent, Knüpfer, Samuli & Kværner, Jens Sørlie
(2025)
Investor factors
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Bertsch, Christoph; Hull, Isaiah, Lumsdaine, Robin L. & Zhang, Xin
(2025)
Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches
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Nyborg, Kjell Gustav & Woschitz, Jiri
(2025)
Robust difference-in-differences analysis when there is a term structure
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Liu, Zack & Winegar, Adam Walter
(2025)
Economic magnitudes within reason
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Liu, Zack & Winegar, Adam Walter
(2025)
Economic Magnitudes within Reason
Vis sammendrag
A common method of calculating economic magnitudes is to multiply the regression coefficient of the variable of interest by its sample standard deviation. This method is often problematic in finance settings when researchers use granular fixed effects. We show that in many recently published finance papers and for many common finance variables, the sample standard deviation is much larger than the within-group variation that identifies the regression coefficient, and that within-group changes of this magnitude are rare. Without additional assumptions, this common approach can significantly inflate the economic magnitude of the identified effect and impact the comparison of effects among different variables of interest. We recommend using within-group measures of variation to improve the interpretation of economic magnitudes in this setting.
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Fagereng, Andreas; Gomez, Matthieu, Gouin-Bonenfant, Emilien, Holm, Martin Blomhoff, Moll, Benjamin & Natvik, Gisle James
(2025)
Asset-Price Redistribution
Vis sammendrag
Asset valuations across many asset classes have increased substantially over the last several decades. While these rising valuations had important effects on the distribution of wealth, little is known regarding their redistributive effects in terms of welfare. To make progress on this question, we develop a sufficient statistic for the money-metric welfare gain of deviations in asset valuations. This welfare gain depends on the present value of an individual’s net asset sales rather than asset holdings: higher asset valuations benefit prospective sellers and harm prospective buyers. We estimate this quantity using panel microdata covering the universe of financial transactions in Norway from 1994 to 2019. We further demonstrate how to adapt our baseline statistic to account for important considerations, such as incomplete markets and collateral constraints. We find that the rise in asset valuations had large redistributive effects: it redistributed from the young to the old and from the poor to the wealthy.
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Xiouros, Costas & Zapatero, Fernando
(2024)
Disagreement, information quality and asset prices
Vis sammendrag
We present an analytical solution for a pure exchange economy featuring a continuum of agents with disagreement, time-varying information quality, and reference-dependent preferences. Our general equilibrium model exhibits stationary dynamics. By examining the implications of the model, we find that the commonly studied asset pricing channels of disagreement have limited quantitative significance. On the other hand, variations in information quality, which affect disagreement levels, lead to substantial excess stock price volatility. This finding contributes significantly to explaining the equity premium and sheds light on empirical relationships between forecast dispersion and asset prices, the upward sloping real yield curve, and long-term yield movements.
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Longarela, Inaki Rodriguez & Bjønnes, Geir Høidal
(2024)
Price Discovery for Competing Currency Numeraires
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Brogaard, Jonathan; Gerasimova, Nataliya & Rohrer, Maximilian
(2024)
The effect of female leadership on contracting from Capitol Hill to Main Street
Vis sammendrag
This paper provides novel evidence that female politicians increase the proportion of US government procurement contracts allocated to women-owned firms. For identification, we use a regression discontinuity design on a sample of mixed-gender elections in the US House of Representatives. The effect grows over a female representative's tenure and concentrates in female representatives who are on powerful congressional committees. Changes in the pool of and behavior by government contractors cannot explain the result. The more gender-balanced representation in government contracting is not associated with economic costs.
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Menkveld, Albert; Abad-Diaz, David, Abudy, Menachem, Adrian, Tobias, Ait-Sahalia, Yacine, Akmansoy, Olivier, Alcock, Jamie T., Alexeev, Vitali, Aloosh, Arash, Amato, Livia, Amaya, Diego, Dreber, Anna, Angel, James J., Avetikian, Alejandro T., Bach, Amadeus, Baidoo, Edwin, Bakalli, Gaetan, Bao, Li, Bardon, Andrea, Bashchenko, Oksana, Bindra, Parampreet C., Bjønnes, Geir Høidal, Holzmeister, Felix, Black, Jeffrey R., Black, Bernard S., Bogoev, Dimitar, Correa, Santiago Bohorquez, Bondarenko, Oleg, Bos, Charles S., Bosch-Rosa, Ciril, Bouri, Elie, Brownlees, Christian, Calamia, Anna, Huber, Juergen, Cao, Viet Nga, Capelle-Blancard, Gunther, Romero, Laura M. Capera, Caporin, Massimiliano, Carrion, Allen, Caskurlu, Tolga, Chakrabarty, Bidisha, Chen, Jian, Chernov, Mikhail, Cheung, William, Johannesson, Magnus, Ellen, Saskia ter, Ødegaard, Bernt Arne, Longarela, Inaki Rodriguez, Wika, Hans C., Yuferova, Darya, Kirchler, Michael, Neusus, Sebastian, Razen, Michael & Weitzel, Utz
(2024)
Non-Standard Errors
Vis sammendrag
In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in 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—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.
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Davydiuk, Tetiana; Marchuk, Tatyana & Rosen, Samuel
(2024)
Direct lenders in the U.S. middle market
Vis sammendrag
This paper studies the rise of direct lending using a comprehensive dataset of investments by business development companies (BDC). We exploit three exogenous shocks to credit supply, including new banking regulations and a major finance company collapse, to establish that BDC capital acts as a substitute for traditional financing. Using firm-level data, we further document that firms’ access to BDC funding stimulates their employment growth and patenting activity. Beyond credit provision, BDCs contribute to firm growth through managerial assistance.
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Maggio, Marco Di; Franzoni, Francesco, Massa, Massimo & Roberto, Tubaldi
(2024)
Strategic trading as a response to short sellers
Vis sammendrag
We examine whether the strategic response to short selling by other informed investors decelerates the incorporation of positive information. We find a sizeable reduction of positive information impounding before earnings announcements for stocks more exposed to short selling. Consistent with strategic behavior, we find that investors with positive views slow down their trades when short sellers are also present. Furthermore, they break up their buy trades across multiple brokers, suggesting they wish to prevent a price impact. Thus, the strategic reaction to short selling appears to have implications for information impounding before public information releases.
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Geelen, Thomas; Hajda, Jakub, Morellec, Erwan & Winegar, Adam Walter
(2024)
Asset life, leverage, and debt maturity matching
Vis sammendrag
Capital ages and must eventually be replaced. We propose a theory of financing in which firms borrow to finance investment and deleverage as capital ages to have enough financial slack to finance replacement investments. To achieve these dynamics, firms issue debt with a maturity that matches the useful life of assets and a repayment schedule that reflects the need to free up debt capacity as capital ages. In the model, leverage and debt maturity are negatively related to capital age while debt maturity and the length of debt cycles are positively related to asset life. We provide empirical evidence that strongly supports these predictions.
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Lotfi, Somayyeh; Pagliardi, Giovanni, Paparoditis, Efstathios & Zenios, Stavros A.
(2024)
Hedging political risk in international portfolios
Vis sammendrag
We show that internationally diversified portfolios carry sizeable political risk premia and expose investors to tail risk. We obtain political efficient frontiers with and without hedging political risk using a portfolio selection model for skewed distributions and develop a new asymptotic inference test to compare portfolio performance. Politically hedged portfolios outperform a broad market index and the equally weighted portfolio for US, Eurozone, and Japanese investors. Political risk hedging is not subsumed by currency hedging, and the diversification gains of politically hedged portfolios persist under currency hedging and transaction cost frictions. Hedging political risk induces equity home bias but does not fully explain the puzzle.
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Fjære-Lindkjenn, Jeanette; Aastveit, Knut Are, Karlman, Markus Johan, Kinnerud, Karin, Juelsrud, Ragnar Enger & Wold, Ella Getz
(2024)
Hvordan virker utlånsforskriften? En oppsummering av forskningslitteraturen
Samfunnsøkonomen, 138(2).
Vis sammendrag
I denne artikkelen forsøker vi å svare på om utlånsforskriften har virket etter hensikten og hvilke kostnader den påfører husholdningene. Forskningslitteraturen indikerer at boliglånsregulering bidrar til noe lavere gjelds- og boligprisvekst, men at det er mer usikkert om den reduserer husholdningenes sårbarhet for uforutsette hendelser som renteøkninger og arbeidsledighet. Utlånsforskriften påfører samtidig mange husholdninger kostnader ved at den begrenser muligheten for konsumglatting og kan gjøre det vanskeligere for unge å kjøpe sin første bolig. Reguleringen kan også forsterke viktigheten av formuende foreldre for muligheten til boligkjøp. Høy inflasjon og rente kan redusere behovet for forskriften og øke kostnadene.
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Giordani, Paolo
(2024)
SMARTboost Learning for Tabular Data
Vis sammendrag
We introduce SMARTboost (boosting of symmetric smooth additive regression trees), an extension of gradient boosting machines with improved accuracy when the underlying function is smooth or the sample small or noisy. In extensive simulations, we find that the combination of smooth symmetric trees and of carefully designed priors gives SMARTboost a large edge (in comparison with XGBoost and BART) on data generated by the most common parametric models in econometrics, and on a variety of other smooth functions. XGBoost outperforms SMARTboost only when the sample is large, and the underlying function is highly discontinuous. SMARTboost’s performance is illustrated in two applications to global equity returns and realized volatility prediction.
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Keloharju, Matti; Knüpfer, Samuli, Müller, Dagmar & Tåg, Joacim
(2024)
PhD studies hurt mental health, but less than previously feared
Vis sammendrag
We study the mental health of PhD students in Sweden using comprehensive administrative data on prescriptions, specialist care visits, hospitalizations, and causes of death. We find that about 7 % (5 %) of PhD students receive medication or diagnosis for depression (anxiety) in a given year. These prevalence rates are less than one-third of the earlier reported survey-based estimates, and even after adjusting for difference in methodology, 43 % (72 %) of the rates in the literature. Nevertheless, PhD students still fare worse than their peers not pursuing graduate studies. Our difference-in-differences research design attributes all of this health disadvantage to the time in the PhD program. This deterioration suggests doctoral studies causally affect mental health
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Juelsrud, Ragnar Enger & Wold, Ella Getz
(2024)
The Importance of Unemployment Risk for Individual Savings
Vis sammendrag
In this paper, we use a novel natural experiment and Norwegian tax data to quantify the causal impact of unemployment risk on individual savings. By comparing individuals who live in the same area but face different increases in risk, we show that a one-percentage-point increase in unemployment rates increases safe assets by 1.3%. Reas- suringly, this effect is driven by low-tenured workers, who face the highest increase in risk. Savings in risky financial assets remain unaffected, implying a decrease in the overall risky share of individual portfolios. We use two independent approaches, relying either on cross-sectional variation or time series variation, to quantify the importance of job loss risk in accounting for higher savings during recessions. Our results suggest that unemploy- ment risk can explain 60%–80% of the recession-induced increase in safe assets
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Andrews, Spencer; Colacito, Riccardo, Croce, Mariano M. & Gavazzoni, Federico
(2024)
Concealed carry
Vis sammendrag
The slope carry takes a long (short) position in the long-term bonds of countries with steeper (flatter) yield curves. The traditional carry takes a long (short) position in countries with high (low) short-term rates. We document that: (i) the slope carry return is slightly negative (strongly positive) in the pre (post) 2008 period, whereas it is concealed over longer samples; (ii) the traditional carry return is lower post-2008; and (iii) expected global growth and inflation declined post-2008. We connect these findings through an equilibrium model in which countries feature heterogeneous exposure to news shocks about global output and global inflation.
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Fagereng, Andreas; Onshuus, Helene & Torstensen, Kjersti Næss
(2024)
The consumption expenditure response to unemployment: Evidence from Norwegian households
Vis sammendrag
This paper examines heterogeneity in household income and consumption responses to unemployment, using granular administrative tax data from Norway. On average, unemployment results in a significant, lasting income reduction, accompanied by a decrease in consumption expenditures of between one-third to one-half of the income loss. We find that households with greater liquid assets at the outset experience less of a decline in consumption, whereas those with higher levels of debt encounter a more substantial decrease. Notably, also the interaction of liquid assets and debt holdings matters for the consumption response. While households with larger initial liquid asset holdings on average respond less, the analyses show that this is not the case among households that simultaneously hold substantial amounts of debt, thus adding to a more nuanced view of the importance of household heterogeneity for economic outcomes. Furthermore, our investigation into heterogeneity across family composition and child age uncovers distinct patterns in consumption responses, highlighting the varied impacts of unemployment. Lastly, we find that spending patterns, as indicated by the marginal propensity to consume (MPC), become more pronounced during recessions.
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Klingler, Sven & Syrstad, Olav
(2024)
The SOFR discount
Vis sammendrag
The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) affects the reference rate of floating-rate debt worth trillions of dollars. We provide the first evidence highlighting a benefit of the benchmark transition for debt markets. Focusing on the market for dollar-denominated floating rate notes (FRNs), we compare the yield spreads of FRNs linked to LIBOR and SOFR, issued by the same entity during the same month. After adjusting for the maturity-matched spreads from derivatives markets, we find significantly lower spreads for SOFR-linked FRNs. We link this SOFR discount to the enhanced price stability of SOFR-linked FRNs.
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Jansen, Mark & Winegar, Adam Walter
(2024)
Nonpecuniary Benefits: Evidence from the Location of Private Company Sales
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This paper investigates whether acquisition prices reflect a specific set of nonpecuniary benefits preferred by entrepreneurs: the quality of life (QOL) associated with the business location. Using data on private firm acquisitions, we find that target firms in high-QOL cities sell for a 14% to 20% premium. Traditional financial factors do not explain this premium, which dissipates when the buyer is unlikely to have preferences for high-QOL locations. Using wage-to-housing cost differentials to decompose local amenities and data on migration patterns, we find that QOL amenities have a greater impact on entrepreneurs’ location decisions relative to wage workers. (JEL G02, G32, G34, J32, L26, R39)
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Berzins, Janis & Pajuste, Anete
(2024)
Family firm successions: First-generation transitions in Latvia
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Cooley, Thomas F.; Henriksen, Espen & Nusbaum, Charlie
(2024)
Demographic obstacles to European growth
Vis sammendrag
The growth rates of the four largest European economies – France, Germany, Italy, and the United Kingdom – have slowed in recent decades. The persistence of the slowdown suggests that a low-frequency structural change is at work. Longer life expectancy and declining fertility have led to gradually ageing populations. These demographic trends contribute to economic growth directly through aggregate savings and labor supply decisions and indirectly through distortionary taxes needed to fund pension systems. We provide a structural framework to quantify the demographic contributions to historical and future growth rates. Several reforms have been suggested to increase late-life labor supply and, through that, output growth. Our structural framework also gives a welfare measure to evaluate these proposed reforms. The welfare implications are heterogeneous across age, wealth, and income. Welfare heterogeneity offers some insights into the political economy of pension reforms and the opposition to their implementation despite the projected increase in aggregate output growth.
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Heyerdahl-Larsen, Christian & Walden, Johan
(2023)
On efficiency in disagreement economies
Vis sammendrag
We analyze multiple-beliefs based efficiency measures in economies with risk
and disagreement, including belief neutral efficiency and inefficiency, incomplete
knowledge efficiency, efficiency based on unanimity, and utility aggregators that
minimize Bergson welfare functions over multiple beliefs. We provide equivalence
results under technical conditions that are satisfied in several work-horse economies,
including the exchange economy and a standard economy with a linear production
technology. We also provide several examples for which these measures differ. Our
results show that the further away one gets from the standard exchange economy,
the more the different multiple-beliefs based measures differ in the allocations they
identify as efficient, in general. Consequently, the more important the choice of efficiency measures becomes.
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Holm, Martin B.; Juelsrud, Ragnar Enger, Riiser, Mikkel Irving Fiksdal, König, Tobias, Hegna, Torje Meyer & Cao, Jin
(2023)
The Investment Channel of Monetary Policy: Evidence from Norway
Working Paper, Norges Bank.
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Croce, Mariano Massimiliano; Marchuk, Tatyana & Schlag, Christian
(2023)
The Leading Premium
Vis sammendrag
In this paper, we consider conditional measures of lead-lag relationships between aggregate growth and industry-level cash-flow growth in the US. Our results show that firms in leading industries pay an average annualized return 3.6% higher than that of firms in lagging industries. Using both time series and cross sectional tests, we estimate an annual pure timing premium ranging from 1.2% to 1.7%. This finding can be rationalized in a model in which (a) agents price growth news shocks, and (b) leading industries provide valuable resolution of uncertainty about the growth prospects of lagging industries.
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Ehling, Paul; Lundeby, Stig Roar Haukø & Sørensen, Lars Qvigstad
(2023)
Portfolio Choice with ESG Disagreement: Customizing Sustainability through Direct Indexing
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Hull, Isaiah & Sattath, Or
(2023)
The properties of contemporary money
Vis sammendrag
The properties of money commonly referenced in the economics literature were originally identified by Jevons and Menger in the late 1800s and were intended to describe physical currencies, such as commodity money, metallic coins, and paper bills. In the digital era, many non-physical currencies have either entered circulation or are under development, including demand deposits, cryptocurrencies, stablecoins, central bank digital currencies, in-game currencies, and quantum money. These forms of money have novel properties that have not been studied extensively within the economics literature, but may ultimately determine which currencies prevail in the forthcoming era of currency competition. This review makes the first exhaustive attempt to identify and organize all properties of physical and digital forms of money. It examines both the economics and computer science literatures and categorizes properties within an expanded version of the canonical Jevons–Menger framework.
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Burkart, Mike; Miglietta, Salvatore & Ostergaard, Charlotte
(2023)
Why Do Boards Exist? Governance Design in the Absence of Corporate Law
Vis sammendrag
We study under which circumstances firms choose to install boards and their roles in a historical setting in which neither boards nor their duties are mandated by law. Boards arise in firms with large, heterogeneous shareholder bases. We propose that an important role of boards is to mediate between heterogeneous shareholders with divergent interests. Voting restrictions are common and ensure that boards are representative and not captured by large blockholders. Boards are given significant powers to both mediate and monitor management, and these roles are intrinsically linked.
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Ehling, Paul & Xiouros, Costas
(2023)
Cyclical β
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Zhang, Tong
(2023)
Critical Realism: A Critical Evaluation
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Critical realism, championed by its proponents as the most promising post-positivist social science paradigm, has gained significant influence in the last few decades. This paper provides a critical evaluation of the critical realism movement in the hope of facilitating more fruitful dialogues between its proponents and rivalling schools of sociologists. Two concerns are raised about contemporary critical realism. First, critical realism is not the only philosophical school against positivism and not necessarily the best. Second, critical realists exaggerate the importance of critical realism to social science and conflate philosophy of science with sociological theories.
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Xiouros, Costas & Zapatero, Fernando
(2023)
Disagreement, information quality and asset prices
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Møller, Stig & Priestley, Richard
(2023)
The Role of the Discount Rate in Investment and Employment Decisions
Vis sammendrag
Time variation in the discount rate affects investment and employment decisions in a manner consistent with Q-theory predictions. This evidence is uncovered when using cyclical consumption as a proxy for the discount rate. The results, which are consistent across both U.S. and international data, suggest that firms respond rationally to variations in the cost of capital and that the discount rate has a substantial impact on macroeconomic dynamics and hence business cycle fluctuations.
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Zhang, Tong
(2023)
The illusion of meritocracy
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Meritocracy claims to reward the meritorious with more resources, thereby achieving social efficiency and justice in a level playground. This article argues that the rise of meritocracy in a society is the institutional consequence of adopting progressive humanism, an ideal-type worldview that advocates the harmonious co-realization of individual achievement and social contribution. However, meritocracy is a self-defeating illusion because, even in a level playground, it only rewards conspicuous and wasteful display of ‘merit’ rather than genuine contributions to society. Similar to the promise of an afterlife to Catholicism, the illusion of meritocracy constitutes an indispensable theodicy to progressive humanism. For societies holding such worldviews, meritocracy is a necessary illusion that cannot be dispelled by institutional reforms or political movements.
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Chaboud, Alain; Rime, Dagfinn & Sushko, Vladyslav
(2023)
The foreign exchange market
Vis sammendrag
This chapter discusses the structure and functioning of the spot foreign exchange (FX) market. The market structure, which has become far more complex over the past three decades, has mostly evolved endogenously as the global FX market is subject to notably less regulatory oversight than equity and bond markets in most countries. Major banks used to dominate liquidity provision, but they have found their role challenged by High Frequency Trading firms in an increasingly fragmented electronic market. The information structure of the market has also changed. As such, high-frequency cross-asset correlations, especially with the futures market, have become more important. The chapter also discusses the important role of the official sector in the FX market, and it highlights a few special topics such as flash events and the FX fixing scandal. We conclude with some suggestions for future research.
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Davydiuk, Tetiana; Marchuk, Tatyana & Rosen, Samuel
(2023)
Market Discipline in the Direct Lending Space
Vis sammendrag
Using the exclusion of business development companies (BDCs) from stock indexes, this paper studies the effectiveness of market discipline in the direct lending space. Amid share sell-offs by institutional investors, a drop in BDCs’ valuations limits their ability to raise new equity capital. Following this funding shock, BDCs do not adjust their capital structure while reducing the risk exposure of their portfolios. We document a greater reduction in risk for BDCs subject to stronger market discipline from their debtholders. BDCs pass through the capital shock to their portfolio firms by reducing their investment intensity.
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Keloharju, Matti; Knüpfer, Samuli & Tåg, Joacim
(2023)
CEO health
Vis sammendrag
Using comprehensive data on 28 cohorts in Sweden, we analyze CEO health and its determinants and outcomes. We find CEOs are in much better health than the population and on par with other high-skill professionals. These results apply in particular to mental health and to CEOs of larger companies. We explore three mechanisms that can account for CEOs’ robust health. First, we find health predicts appointment to a CEO position. Second, the CEO position has no discernible impact on the health of its holder. Third, poor health is associated with greater CEO turnover. Here, both contemporaneous health and health at the time of appointment matter. Poor CEO health also predicts poor firm outcomes. We find a statistically significant association between mental health and corporate performance for smaller-firm CEOs, for whom a one standard deviation deterioration in mental health translates into a performance reduction of 6% relative to the mean.
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Gala, Vito D.; Pagliardi, Giovanni & Zenios, Stavros A.
(2023)
Global political risk and international stock returns
Vis sammendrag
Using novel measures of politics-policy uncertainty we document predictable variation in stock market returns across countries. Country characteristics and existing global and local risk factors do not account for such predictability, leading to large abnormal returns up to 15% per annum. We identify a global political risk factor (P-factor) commanding a risk premium of 11% per annum. High political uncertainty countries covary positively with the P-factor, earning higher average returns. Augmenting the global market portfolio with the P-factor significantly reduces pricing errors and improves cross-sectional fit. Politics-policy uncertainty affects returns through both cash-flow and discount rate channels.
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Eggertsson, Gauti; Juelsrud, Ragnar Enger, Summers, Lawrence H. & Wold, Ella Getz
(2023)
Negative Nominal Interest Rates and the Bank Lending Channel
Vis sammendrag
We investigate the bank lending channel of negative nominal policy rates from an empirical and theoretical perspective. For the empirical results we rely on Swedish data, including daily banklevel lending rates. We find that retail household deposit rates are subject to a lower bound (DLB). Empirically, once the DLB is met, the pass-through to mortgage lending rates and credit volumes is substantially lower and bank equity values decline in response to further policy rate cuts. We construct a banking sector model and use our estimate of the pass-through of negative policy rates to lending rates as an identified moment to parameterize the model and assess the impact of negative policy rates in general equilibrium. Using the theoretical framework, we derive a sufficient statistic for when negative policy rates are expansionary and when they are not.
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Alfaro, Iván; Bloom, Nicholas & Lin, Xiaoji
(2023)
The Finance Uncertainty Multiplier
Vis sammendrag
We show how real and financial frictions amplify, prolong and propagate thenegative impact of uncertainty shocks. We first use a novel instrumentation strategy toaddress endogeneity in estimating the impact of uncertainty by exploiting differentialfirm exposure to exchange rate, policy, and energy price volatility in a panel of USfirms. Using common proxies for financial constraints we show that ex-ante financiallyconstrained firms cut their investment even more than unconstrained firms following anuncertainty shock. We then build a general equilibrium heterogeneous firms model withreal and financial frictions, finding financial frictions: i)amplifyuncertainty shocks bydoubling their impact on output; ii) increasepersistenceby extending the duration ofthe drop by 50%; and iii)propagateuncertainty shocks by spreading their impact ontofinancial variables. These results highlight why in periods of greater financial frictionsuncertainty can be particularly damaging.
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Henriksen, Espen & Tretvoll, Håkon
(2023)
Evaluering av strategiske allokeringsbeslutninger: Regionfordelingen i SPU
Samfunnsøkonomen, 137(1), p. 39-60.
Vis sammendrag
Mange investorer velger å delegere forvaltningen av formuen sin til en forvaltningsbedrift. For eksempel har Finansdepartementet delegert gjennomføringen av forvaltningen av SPU («Oljefondet») til Norges Bank. Avkastning og risiko bestemmes da dels av de langsiktige strategiske valgene som oppdragsgiver har tatt og dels av de taktiske avvikene som forvalteren velger å ta. I denne artikkelen presenterer vi et strukturelt rammeverk for å evaluere strategiske valg og gi estimater på verdiskapingen ved disse valgene. Vi anvender dette på en beslutning i 2012 om hvordan aksjeporteføljen til SPU skulle fordeles på tvers av fire globale regioner.
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Klingler, Sven & Sundaresan, Suresh M.
(2023)
Diminishing Treasury Convenience Premiums: Effects of Dealers' Excess Demand In Auctions
Vis sammendrag
After the global financial crisis, the yields of U.S. Treasury bills frequently exceed other risk-free rate benchmarks, thereby pointing to a diminishing convenience premium. Constructing a new measure of dealers' balance sheet constraints for providing intermediation in U.S. Treasury markets, we trace these diminishing convenience premiums to primary dealers' ability to act as intermediaries. Even after accounting for Treasury supply, levels of interest rates, and other controls, falling excess demand of primary dealers in Treasury auctions, their increased Treasury holdings, and balance sheet constraints post-2015, remain key variables in explaining the diminishing convenience premiums.
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Chalak, Karim; Kim, Daniel, Miller, Megan & Pepper, John
(2022)
Reexamining the evidence on gun ownership and homicide using proxy measures of ownership
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Limited by the lack of data on gun ownership in the United States, ecological research linking firearms ownership rates to homicide often relies on proxy measures of ownership. Although the variable of interest is the gun ownership rate, not the proxy, the existing research does not formally account for the fact that the proxy is an error-ridden measure of the ownership rate. In this paper, we reexamine the ecological association between state-level gun ownership rates and homicide explicitly accounting for the measurement error in the proxy measure of ownership. To do this, we apply the results in Chalak and Kim (2020) to provide informative bounds on the mean association between rates of homicide and firearms ownership. In this setting, the estimated lower bound on the magnitude of the association corresponds to the conventional linear regression model estimate whereas the upper bound depends on prior information about the measurement error process. Our preferred model yields an upper bound on the gun homicide elasticity that is nearly three times larger than the fixed effects regression estimates that do not account for measurement error. Moreover, we consider three point-identified models that rely on earlier validation studies and on instrumental variables respectively, and find that the gun homicide elasticity nearly equals this upper bound. Thus, our results suggest that the association between gun homicide and ownership rates is substantially larger than found in the earlier literature.
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Syrstad, Olav & Viswanath-Natraj, Ganesh
(2022)
Price-setting in the foreign exchange swap market: Evidence from order flow
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Rime, Dagfinn; Schrimpf, Andreas & Syrstad, Olav
(2022)
Covered Interest Parity Arbitrage
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Knüpfer, Samuli; Rantapuska, Elias & Sarvimäki, Matti
(2022)
Social Interaction in the Family: Evidence from Investors’ Security Holdings
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We show that investors tend to hold the same securities as their parents. This intergenerational correlation is stronger for mothers and family members who are more likely to communicate with each other. An instrumental variables estimation and a natural experiment suggest that the correlation reflects social influence. This influence runs not only from parents to children, but also vice versa. The resulting holdings of identical securities increase intergenerational correlations in portfolio choice, exacerbate wealth inequality, and amplify the consequences of behavioral biases.
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Priestley, Richard; Cooper, Ilan & Mitrache, Andreea
(2022)
A Global Macroeconomic Risk Model for Value, Momentum, and Other Asset Classes
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Zhang, Tong
(2022)
Reinterpreting Science as a Vocation
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Weber’s “science as a vocation” has often been viewed as a therapeutic concept with no functional significance in the fully bureaucratized and professionalized modern science. However, development in the philosophy of science in the last century, especially the Kuhnian thesis of the discontinuity of scientific progress and the Duhem-Quine thesis of underdetermination, shows that Weber’s distinction between science as a vocation and science as a profession (career) can potentially answer one of the oldest questions in science studies: What makes scientific breakthroughs possible?
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Zhang, Tong
(2022)
The Logic of Wasteful Production
Journal of Economics, Theology and Religion (JETR), 2(2), p. 51-66.
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Economic neoliberalism promises social efficiency with self-interested participants and free competition. This doctrine is challenged by the extensive production of wasteful goods and services in the contemporary West. By studying three types of wasteful production—conspicuous goods, conspicuous profession, and information overproduction— this article argues that the cause of wasteful production is nothing but the producers’ profit motive. The discussion of wasteful production provides a first attempt to extend Max Weber’s interpretivist sociology to the study of Nietzscheism, an ideal-type worldview preaching self-realization and power struggle. It adds novel empirical and theoretical support to the Weber thesis by showing that ascetic Protestantism facilitates productive efficiency by reducing not only hedonistic idleness and laziness, but also egoistic power-seeking and the induced wasteful production.
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Kisser, Michael & Rapushi, Loreta
(2022)
Equity issues, creditor control and market timing patterns: Evidence from leverage decreasing recapitalizations
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We contribute to the literature on “market timing” by exploring periods of simultaneous equity issues and debt retirements (a leverage decreasing recapitalization, LDR). Contrary to traditional equity issues, LDRs are predicted by measures of creditor control whereas capital investment has no such predictive power. Nevertheless, LDRs occur after stock price run- ups and in periods of high valuation which subsequently decrease. The valuation dynamics are robust and also obtain for subsamples of LDR firms violating financial covenants. A comparison to debt retirements financed by illiquid asset sales and an analysis of discretionary cost items further corroborates the interpretation that LDR firms successfully “time the market” to finance the debt retirement.
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Elkahmi, Redouane; Kim, Daniel, Jo, Chanik & Salerno, Marco
(2022)
Agency Conflicts and Investment: Evidence from a Structural Estimation
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We develop a dynamic capital structure model to study how agency conflicts between managers and shareholders affect the joint determination of financing and investment decisions. We show that there are two agency conflicts with opposing effects on a manager’s choice of investment: first, the consumption of private benefits channel leads managers not only to choose a lower optimal leverage, but also to underinvest, and second, compensation linked to firm size may lead managers to overinvest. We fit the model to the data and show that the average firm slightly overinvests, younger CEOs invest more than older ones, while CEOs with longer tenure overinvest more than CEOs with shorter tenure
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Klingler, Sven
(2022)
High Funding Risk and Low Hedge Fund Returns
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I show that hedge funds with a high exposure to market-wide funding shocks—measured by changes in Libor-OIS spreads—subsequently underperform funds with a low exposure to market-wide funding shocks by 5.76% annually on a risk-adjusted basis (t = 4.04). To explain this puzzling result, I hypothesize that this type of funding risk exposure is connected to hedge funds’ liabilities with limited upside in normal times and severe downside risk during funding crises. Supporting this hypothesis, the performance difference between low-funding-risk and high-funding-risk funds is largest when funding constraints are most binding and for funds with more fragile liabilities.
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Keloharju, Matti; Knüpfer, Samuli & Tåg, Joacim
(2022)
What prevents women from reaching the top?
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We use rich data on all business, economics, and engineering graduates in Sweden to study the lack of women among chief executive officers (CEOs). A comprehensive battery of graduates’ characteristics explains 40% of the gender gaps in CEO appointments and 60% among graduates with children. The explanatory power mostly comes from absences and unemployment, which are about twice as likely for women as men. These gender differences increase following childbirth, and they persist in the long run. We present and discuss potential explanations to the explained and remaining gaps. Although the large unexplained share makes it hard to pinpoint the exact reason for the gender gap in CEO appointments, the large contribution of labor market attachment to the explained share suggests work–family trade-offs are an important part of the story.
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Rime, Dagfinn; Schrimpf, Andreas & Syrstad, Olav
(2022)
Covered Interest Parity Arbitrage
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To understand deviations from covered interest parity (CIP), it is crucial to account for heterogeneity in funding costs across both banks and currency areas. For most market participants, the no-arbitrage relation holds fairly well when implemented using marginal funding costs and risk-free investment instruments. However, a few high-rated banks do enjoy CIP-arbitrage opportunities. Dealers avert inventory imbalances stemming from lower-rated banks' usage of FX swaps to obtain dollar funding by inducing opposite (arbitrage) flows from high-rated banks. Arbitrage trades are difficult to scale, however, because funding costs increase as soon as arbitrageurs increase positions.
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Zhang, Tong
(2022)
Ethics and Society: A Theory of Comparative Worldviews
Journal of Sociology and Christianity (JSC), 12(2), p. 7-28.
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This article outlines a theist social science paradigm. The central thesis, derived from the assumption of an omnibenevolent and powerful God, is the Law of Divine Selection. It states that the motives of people, or the worldviews they adopt, fundamentally determine their society’s organization and evolution. In particular, the more hedonic or Nietzscheist a society is, the less progressed it will be, and the more ascetic a society is, the more progressed it will be. This provides a consistent and parsimonious explanation of many puzzles in macro-historical studies, among them the Great Divergence between the West and China, the sudden eruption of the two World Wars, and the religious distribution of Nobel Laureates.
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Bøhren, Øyvind; Gjærum, Per Ivar & Hasle, Torkel
(2021)
Solstrøm fra boligtak er ofte godt for både klima og økonomi, men ikke i dagens Norge
Samfunnsøkonomen, 135(5), p. 33-51.
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Vi bruker kvantitativ livsløpsanalyse (vugge-til-grav) og finner at solceller på private boligtak har stor, positiv effekt på klima og økonomi når de lages med ren, billig strøm og erstatter skitten, dyr strøm. Beliggenhet er derfor den grunnleggende forklaringen på solcellers verdiskaping. Selv om et solcelleanlegg på 60 m2 av et norsk boligtak produserer mye strøm, reduserer det likevel ikke klimautslippet med mer enn utslippet i Kina øker når anlegget lages. Derfor skapes det ingen global klimagevinst under våre forutsetninger. Brukes derimot anlegget i land der alternativ strøm er skitten, reduseres årlig CO2-utslipp med mer enn EUs samlede årsutslipp pr. innbygger. I Norge, hvor alternativ strøm både er ren og forholdsvis billig, finner vi at solstrøm er ulønnsomt samfunnsøkonomisk og ofte også privatøkonomisk. Norge er trolig blant de få land der både klimaeffekten og økonomieffekten av solceller på boligtak er negativ. Bedre solcelleteknologi, mer elektrifisering, høyere strømpris og mer strømeksport kan lett forbedre denne situasjonen.
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Eggertsson, Gauti; Robbins, Jacob & Wold, Ella Getz
(2021)
Kaldor and Piketty's facts: The rise of monopoly power in the United States
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The macroeconomic data of the last fifty years have overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and average returns on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy—that is, the emergence of a non-zero-rent economy—along with forces that have led to a persistent long-term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts.
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Hull, Isaiah; Bertsch, Christoph & Zhang, Xin
(2021)
Narrative fragmentation and the business cycle
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Hull, Isaiah; Bertsch, Christoph & Zhang, Xin
(2021)
Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending
The International Journal of Central Banking.
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Hull, Isaiah & Sattath, Or
(2021)
Revisiting the Properties of Money
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Hull, Isaiah; Apel, Mikael & Grimaldi, Marianna Blix
(2021)
How Much Information Do Monetary Policy Committees Disclose? Evidence from the FOMC's Minutes and Transcripts
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Hull, Isaiah; Olovsson, Conny, Walentin, Karl & Westermark, Andreas
(2021)
Manufacturing decline and house price volatility
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Fagereng, Andreas; Holm, Martin Blomhoff & Natvik, Gisle James
(2021)
MPC Heterogeneity and Household Balance Sheets
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We use sizable lottery prizes in Norwegian administrative panel data to explore how transitory income shocks are spent and saved over time, and how households’ marginal propensities to consume (MPCs) vary with household characteristics and shock size. We find that spending peaks in the year of winning and gradually reverts to normal within five years. Controlling for all items on households’ balance sheets and characteristics such as education and income, it is the amount won, age, and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around USD 1,500) are estimated to spend all within the year of winning. The corresponding estimate for high-liquidity winners of large prizes (USD 8,300-150,000) is slightly below one half. While conventional models will struggle to account for such high MPC levels, we show that a two-asset life-cycle model with a realistic earnings profile and a luxury bequest motive can account for both the time profile of consumption responses and their systematic co-variation with observables.
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Ramirez, Jose Alejandro Lopez Lira Y
(2021)
Why do managers disclose risks accurately? Textual analysis, disclosures, and risk exposures
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I provide an economic model that justifies using bag-of-words, topic modeling, and machine learning techniques to measure firms’ risk exposures using the percentage they allocate to each risk in their financial statements. The model provides a theoretical set of sufficient conditions under minimal assumptions that make managers optimally disclose risk accurately and give more space to the most critical risks. I document that the SEC Regulation satisfies this set of sufficient theoretical conditions and induces rational managers to disclose risks truthfully.
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Fagereng, Andreas; Holm, Martin Blomhoff & Torstensen, Kjersti Næss
(2021)
Housing wealth in Norway, 1993–2015
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We provide a new estimate of household-level housing wealth in Norway between 1993 and 2015 using an ensemble machine learning method on housing transaction data. The new housing wealth measure is an improvement over existing data sources for two reasons. First, the model outperforms previously applied regression models in out-of-sample prediction precision. Second, we extend the sample of estimated housing wealth by including cooperative units, non-id apartments, and cabins.
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Klingler, Sven & Syrstad, Olav
(2021)
Life After Libor
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Fagereng, Andreas; Mogstad, Magne & Rønning, Marte
(2021)
Why Do Wealthy Parents Have Wealthy Children?
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We show that family background matters significantly for children’s
accumulation of wealth and investor behavior as adults, even when removing the
genetic connection between children and the parents raising them. The analysis
is made possible by linking Korean-born children who were adopted at infancy by
Norwegian parents to a population panel data set with detailed information on
wealth and socio-economic characteristics. The mechanism by which these Korean-
Norwegian adoptees were assigned to adoptive families is known and effectively
random. This mechanism allows us to estimate the causal effects from an adoptee
being raised in one type of family versus another.
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Zhanhui, Chen; Cooper, Ilan, Ehling, Paul & Xiouros, Costas
(2020)
Risk Aversion Sensitive Real Business Cycles
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Technology choice allows for substitution of production across states of nature
and depends on state-dependent risk aversion. In equilibrium, endogenous technology
choice can counter a persistent negative productivity shock with an increase in investment.
An increase in risk aversion intensifies transformation across states, which directly leads to
higher investment volatility. In our model and the data, the conditional volatility of investment correlates negatively with the price-dividend ratio and predicts excess stock
market returns. In addition, the same mechanism generates predictability of consumption
growth and produces fluctuations in the risk-free rate
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Fabozzi, Frank J.; Klingler, Sven, Mølgaard, Pia & Nielsen, Mads Stenbo
(2020)
Active Loan Trading
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The increased disruption of business models through digital technologies creates opportunities and challenges for retail businesses and their network partners. Digital transformation – the process of digitalization of previously analogue operations,procedures, organizational tasks, and managerial
processes in order to drive value for customers, employees
and other stakeholders – is the order of the day. With that in mind, this article provides a purposeful overview of research in the field of digital transformation with a focus on retailing and customer- facing functions of digital technologies such as managing customer journeys, assessing the impact of sensory marketing and the use of service robots
on the one hand, and their strategic implications
for business models such as servitization on the other. This article concludes by highlighting immediate as well as long-term challenges in the field, with a focus on disruptive technologies, innovations and trends that retail marketing-management will likely face in the near future.
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Zhanhui, Chen; Ehling, Paul & Xiouros, Costas
(2020)
Risk Aversion Sensitive Real Business Cycles
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Hull, Isaiah; Sattath, Or, Diamanti, Eleni & Wendin, Göran
(2020)
Quantum technology for economists
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Cooper, Ilan; Mitrache, Andreea & Priestley, Richard
(2020)
A Global Macroeconomic Risk Model for Value, Momentum, and Other Asset Classes
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Value and momentum returns and combinations of them across both countries and asset classes are explained by their loadings on global macroeconomic risk factors. These loadings describe why value and momentum have positive return premia, although being negatively correlated. The global macroeconomic risk factors also perform well in capturing the returns on other characteristic-based portfolios. The findings identify a global macroeconomic source of the common variation in returns across countries and asset classes.
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Hull, Isaiah; Bertsch, Christoph & Zhang, Xin
(2020)
Bank misconduct and online lending
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Hull, Isaiah; Bertsch, Christoph, Armelius, Hanna & Zhang, Xin
(2020)
Spread the Word: International Spillovers from Central Bank Communication
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Ostergaard, Charlotte; Sasson, Amir & Sørensen, Bent E.
(2020)
Cash flow sensitivities and bank-finance shocks in non-listed firms
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We study how small firms manage cash flows by estimating cash flow sensitivities for all sources and uses of cash. Our data are Norwegian non-listed firms which can be matched to the banks they borrow from. Firms with low cash holdings mainly use external finance to offset cash flow fluctuations over the cycle, whereas firms with high cash holdings rely mainly on internal finance. Estimating how cash flow sensitivities change with exogenous bank shocks, we find that the cyclicality of cash-poor firms' investment is amplified because they do not substitute internal for external finance. Our results imply that for small firms, the transmission of financial shocks to the real economy is closely tied to their accumulation of cash.
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Bjønnes, Geir Høidal; Osler, Carol L. & Rime, Dagfinn
(2020)
Price Discovery in Two-Tier Markets
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This paper examines the price discovery process in a two-tier market, specifically the foreign-exchange market. The goal is to identify the sources of private information and to gain insights into the process through which that informa-
tion influences the market price. Using a transactions database that includes trading-party identities, we show that sustained post-trade returns rise with
bank size, implying that larger banks have an information advantage. The larger banks exploit this information advantage in placing limit orders as well as market orders. We also show that the bank's private information does not come from their corporate or government customers or from some asset managers. Instead, the bank's private information appears to come from other asset managers, including hedge funds, and from the bank's own analysis
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Branger, Nicole; Konermann, Patrick, Meinerding, Christoph & Schlag, Christian
(2020)
Equilibrium Asset Pricing in Directed Networks
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Directed links in cash flow networks affect the cross-section of risk premia through three channels. In a tractable consumption-based equilibrium asset pricing model, we obtain closed-form solutions that disentangle these channels for arbitrary directed networks. First, shocks that can propagate through the economy command a higher market price of risk. Second, shock-receiving assets earn an extra premium since their valuation ratios drop upon shocks in connected assets. Third, a hedge effect pushes risk premia down: when a shock propagates through the economy, an asset that is unconnected becomes relatively more attractive and its valuation ratio increases.
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Gavazzoni, Federico & Santacreu, Ana Maria
(2020)
International R&D Spillovers and Asset Prices
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We study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth. Innovation and international diffusion of technologies are the channels at the core of our mechanism. A calibrated version of the model matches several asset pricing and macroeconomic quantity moments, alleviating some of the puzzles highlighted in the international macro-finance literature. Our model predicts that country pairs that share more research and development (R&D) have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed countries, we provide suggestive empirical evidence in favor of our model’s predictions.
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Natvik, Gisle James; Rime, Dagfinn & Syrstad, Olav
(2020)
Does publication of interest rate paths provide guidance?
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Natvik, Gisle James; Rime, Dagfinn & Syrstad, Olav
(2020)
Does publication of interest rate paths provide guidance?
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Does the central bank practice of publishing interest rate projections (IRPs) improve how market participants map new information into future interest rates? Using high-frequency data on forward rate agreements (FRAs) we compute market forecast errors; differences between expected future interest rates and ex-post realizations. We assess their change in narrow windows around monetary policy announcements and macroeconomic releases in Norway and Sweden. Overall, communication of future policy plans does not improve markets’ response to information, irrespective of whether or not IRPs are in place. A decomposition of market reactions into responses to the current monetary policy action (“target”) and responses to signals about the future (“path”), reveals that only policy actions lead to improvements in market forecasts.
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Fagereng, Andreas; Guiso, Luigi, Malacrino, Davide & Pistaferri, Luigi
(2020)
Heterogeneity and Persistence in Returns to Wealth
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We provide a systematic analysis of the properties of individual returns to wealth
using twelve years of population data from Norway’s administrative tax records. We document
a number of novel results. First, individuals earn markedly different average returns on their
net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in
returns does not arise merely from differences in the allocation of wealth between safe and
risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are
positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth
distribution increases the return by 18 percentage points (and 10 percentage points if looking
at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over
time. We argue that while this persistence partly arises from stable differences in risk exposure
and assets scale, it also reflects heterogeneity in sophistication and financial information, as
well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We
discuss the implications of these findings for several strands of the wealth inequality debate.
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Juelsrud, Ragnar Enger & Wold, Ella Getz
(2020)
Risk-weighted capital requirements and portfolio rebalancing