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Life-long financial security

Life-long savings and debt

Shale Shocked: Cash Windfalls and Household Debt Repayment,” (w/ J.A. Cookson and E. Gilje, 2022)

Journal of Financial Economics, 146(3): 905-931. [+ bibtex]

Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.

Personal Wealth, Self-Employment, and Business Ownership,” (w/ A. Bellon, J.A. Cookson, & E. Gilje, 2021)

Review of Financial Studies, 34(8): 3935-3975. [+ bibtex]

We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.

YOLO: Mortality Beliefs and Household Finance Puzzles,” (w/ K. Myrseth and R. Schoenle, 2019)

Journal of Finance, 74(6): 2957-2996. [+ bibtex]

Dimensional Fund Advisors Distinguished Paper Award

Finalist for TIAA Paul A. Samuelson Award

We study the effect of subjective mortality beliefs on life-cycle behavior. With new survey evidence, we document that survival is underestimated by the young and overestimated by the old. We calibrate a canonical life-cycle model to elicited beliefs. Relative to calibrations using actuarial probabilities, the young under-save by 26%, and retirees draw down their assets 27% slower, while the model’s fit to consumption data improves by 88%. Cross-sectional regressions support the model's predictions: distorted mortality beliefs correlate with savings behavior while controlling for risk preferences, cognitive, and socioeconomic factors. Overweighting the likelihood of rare events contributes to mortality belief distortions.

Growing Up Without Finance,” (w/ J. Brown and J.A. Cookson, 2019)

Journal of Financial Economics, 134(3): 591-616. [+ bibtex]

In Financial Times list of business school research with social impact

Finalist for TIAA Paul A. Samuelson Award

Early-life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using Congressional legislation that led to unintended differences in financial market development across Native American reservations. Individuals from financially underdeveloped reservations enter consumer credit markets later, and upon reaching adulthood, have 10 point lower credit scores and 4 percentage point more delinquent accounts. These effects are long-lived and depreciate slowly after individuals move to more developed areas. Formative exposures to local banking improve consumer credit behavior by increasing financial literacy and financial trust.

The Motives for Bequests: Empirical Facts and Life-cycle Implications,” (w/ X. Li)

Working paper

Bequest motives are essential to models of inter-temporal economic choice but their empirical characteristics are largely undocumented. Using multiple sources of survey data that trace back as far as thirty years, we catalog four crucial findings on peoples' expectations of leaving inheritances and their subjective preferences toward bequests. (1) People overestimate the likelihood of leaving an inheritance and its size. (2) People's subjective preference toward leaving bequests is U-shaped over the life-cycle and (3) is larger for stock owners particularly those who experience high returns. (4) Bequests are subjectively more important for wealthier individuals, which is consistent with theories of bequests as a luxury good. Finally, we explore the implications of these stylized facts on wealth accumulation and portfolio choice in the context of a canonical life-cycle model with precautionary savings. 

The Wealth Draw-down of the Fabulously Rich: Insights from Private Family Foundations,” (w/ C. Ahn)

Coming soon

We connect genealogical records to the universe of 501(c)(3) private foundations to provide novel insights into the late-in-life assets holdings and charitable contributions of the wealthiest households in the U.S. This linkage allows us to track life-cycle financial assets and charitable disbursements for 8,850 families that hold an average of 22.4 million dollars annually in trust. In contrast to life-cycle models that predict a smooth draw-down of assets late in life, we find that the death of the eldest family member leads to an immediate 76.5% increase in assets held in trust. Yet few are prepared to distribute their wealth postmortem --- charitable disbursements take years to match post-death inflows and funds are less likely to meet the five-percent rule to qualify for non-profit status. We also find that the doubling of the lifetime estate and gift tax exemption in the 2017 Tax Cut and Jobs Act caused a 38.6% reduction in postmortem inflows into trust, which suggests that many family foundations are used to reduce estate taxes. These findings contribute to our understanding of inter-generational wealth inequality. 


Politicizing Consumer Credit,” (w/ P. Akey and S. Lewellen, 2021)

Journal of Financial Economics, 139(2): 627-655. [+ bibtex]

Powerful politicians can interfere with the enforcement of regulations. As such, expected political interference can affect constituents’ behavior. Using rotations of Senate committee chairs to identify variation in political power and expected regulatory relief, we study powerful politicians’ effect on consumer lending to communities protected by fair-lending regulations. We find a 7.5% reduction in credit access to minority neighborhoods in states with new committee chairs. Larger reductions occur in Community Reinvestment Act-eligible neighborhoods and when Senators serve on committees that oversee the enforcement of fair-lending laws. Banks headquartered in powerful Senators’ states are responsible for the reduction in credit access.

Using High-Frequency Evaluations to Estimate Disparate Treatment: Evidence from Loan Officers,” (w/ M. Giacoletti and E. Yu)

R&R, Review of Financial Studies [+ bibtex]

Best paper winner at MFA 2021

We develop modified benchmarking tests for disparate treatment that we apply to 25 years of mortgage lending. Our tests limit the scope for omitted variables by linking high-frequency mortgage decisions to an economic mechanism—loan officers have volume quotas that cause increased approval rates at month-end. We estimate that these quotas at least halve the unexplained 7 ppt Black approval gap. Loan officers more likely to miss their quotas have larger increases in Black approvals. Suggesting supply-side mechanisms, applications arrive at a constant rate within-month, and neither differences in credit risk nor applicant preferences explain the month-end decline in racial differences.

Intergenerational Homeownership and Mortgage Distress,” (w/ N. Fritsch)

FRB-CLE Economic Commentary, June 2020.

Rates of US homeownership have declined in the past two decades, and the decline has been especially pronounced for young adults. Motivated by recent research that explores the ways in which personal experiences can affect financial attitudes and beliefs, we explore whether the negative homeownership experiences of parents during the 2008 financial crisis could have caused their children to view homeownership less favorably. We find that parental mortgage distress negatively correlates with the probability that a child will purchase a home, and we explore various channels through which this link may occur.

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