Housing Collateral and Entrepreneurship SCHMALZ, MARTIN C.; SRAER, DAVID A.; THESMAR, DAVID
The Journal of finance (New York),
February 2017, Volume:
72, Issue:
1
Journal Article
Peer reviewed
Open access
We show that collateral constraints restrict firm entry and postentry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral ...values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.
Speculative Betas HONG, HARRISON; SRAER, DAVID A.
The Journal of finance (New York),
October 2016, Volume:
71, Issue:
5
Journal Article
Peer reviewed
The risk and return trade-off, the cornerstone of modern asset pricing theory, is often of the wrong sign. Our explanation is that high-beta assets are prone to speculative overpricing. When ...investors disagree about the stock market's prospects, high-beta assets are more sensitive to this aggregate disagreement, experience greater divergence of opinion about their payoffs, and are overpriced due to short-sales constraints. When aggregate disagreement is low, the Security Market Line is upward-sloping due to risk-sharing. When it is high, expected returns can actually decrease with beta. We confirm our theory using a measure of disagreement about stock market earnings.
What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral ...channel, shocks to the value of real estate can have a large impact on aggregate investment. To compute the sensitivity of investment to collateral value, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. Over the 1993-2007 period, the representative US corporation invests $0.06 out of each $1 of collateral.
This paper empirically documents the performance and behavior of family firms listed on the French stock exchange between 1994 and 2000. On the French stock market, approximately one third of the ...firms are widely held, whereas the remaining two thirds are family firms. We find that, in the cross-section, family firms largely outperform widely held corporations. This result holds for founder-controlled firms, professionally managed family firms, but more surprisingly also for firms run by descendants of the founder. We offer explanations for the good performance of family firms. First, we present evidence of a more efficient use of labor in heir-managed firms. These firms pay lower wages, even allowing for skill and age structure. We also find that descendants smooth out industry shocks and manage to honor implicit labor contracts. Second, we present evidence consistent with outside CEOs in family firms making a more parsimonious use of capital. They employ more unskilled, cheap labor, use less capital, pay lower interest rates on debt and initiate more profitable acquisitions.
The Banking View of Bond Risk Premia HADDAD, VALENTIN; SRAER, DAVID
The Journal of finance (New York),
10/2020, Volume:
75, Issue:
5
Journal Article
Peer reviewed
Open access
Banks' balance sheet exposure to fluctuations in interest rates strongly forecasts excess Treasury bond returns. This result is consistent with optimal risk management, a banking counterpart to the ...household Euler equation. In equilibrium, the bond risk premium compensates banks for bearing fluctuations in interest rates. When banks' exposure to interest rate risk increases, the price of this risk simultaneously rises. We present a collection of empirical observations that support this view, but also discuss several challenges to this interpretation.
Financial frictions generate misallocation of resources across firms by restricting productive firms' access to capital. This article reviews the literature that estimates the aggregate losses ...generated by such misallocation. The first approach relies on structural estimations: A model of firm dynamics with financial frictions is typically estimated and used to compare efficiency in the actual economy with a counterfactual with perfect financial markets. We argue that robustness is a central concern for this structural literature and discuss ways to analyze robustness in structural estimation (using well-identified moments and analyzing sensitivity to moments). The second approach relies on sufficient statistics, namely formulas that measure misallocation using simple empirical statistics and that are valid for a class of models. We discuss key contributions in that space, the generality of this approach, and the conditions under which it is valid. Sufficient statistic approaches are simpler and more robust, but they come at a cost: The range of counterfactual analyses that can be explored is more limited.
The correlation in house price growth across US states increased steadily between 1976 and 2000. This paper shows that the contemporaneous geographic integration of the US banking market, via the ...emergence of large banks, was a primary driver of this phenomenon. To this end, we first theoretically derive an appropriate measure of banking integration across state pairs and show that house price growth correlation is strongly related to this measure of financial integration. Our instrumental variable estimates suggest that banking integration can explain up to one-fourth of the rise in house price correlation over this period.
This paper examines the extent to which individual investors provide liquidity to the stock market and whether they are compensated for doing so. We show that the ability of aggregate retail order ...imbalances, contrarian in nature, to predict short-term future returns is significantly enhanced during times of market stress, when market liquidity provisions decline. While a weekly rebalanced portfolio long in stocks purchased and short in stocks sold by retail investors delivers 19% annualized excess returns over a four-factor model from 2002 to 2010, it delivers up to 40% annualized returns in periods of high uncertainty. Despite this high aggregate performance, individual investors do not reap the rewards from liquidity provision because they experience a negative return on the day of their trade and they reverse their trades long after the excess returns from liquidity provision are dissipated. During the financial crisis, French active retail stock traders stepped up to the plate, increased stock holdings, and provided liquidity. In contrast, mutual fund investors fled from delegation by selling their mutual funds.
The cash-flow exposure of banks to interest rate risk, or income gap, is a significant determinant of the transmission of monetary policy to bank lending and real activity. When the Fed Funds rate ...rises, banks with a larger income gap generate stronger earnings and contract their lending by less than other banks. This finding is robust to controlling for factors known to affect the transmission of monetary policy to bank lending. It also holds on loan-level data, even when we control for firm-specific credit demand. When monetary policy tightens, firms borrowing from banks with a larger income gap reduce their investment by less than other firms.
Individual Investors and Volatility FOUCAULT, THIERRY; SRAER, DAVID; THESMAR, DAVID J.
The Journal of finance (New York),
August 2011, Volume:
66, Issue:
4
Journal Article
Peer reviewed
We show that retail trading activity has a positive effect on the volatility of stock returns, which suggests that retail investors behave as noise traders. To identify this effect, we use a reform ...of the French stock market that raises the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by 20 basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades.
PDF
