Research
Working Papers
"Institutional investors in the market for single-family housing: Where did they come from, where did they go?"
- Finalist, Best Student Paper Award, UEA Toronto 2023
The real cost of benchmarking (with Christian Kontz) (SSRN)
Abstract
Since 2012 the U.S. market for single-family homes has experienced a large and unprecedented rise in rental purchases by institutional investors or ``Wall Street Landlords''. My paper causally attributes the entry of these financially unconstrained investors to an increase in expected returns that is driven by (i) declining long-term interest rates and (ii) tighter household funding constraints. After entry into a local market, house prices and rents grow 2pp and 1.2pp faster per year. The majority of faster house price growth can be accounted for by market timing and would likely also occur in the absence of institutional investors. Faster rental growth cannot be accounted for by market timing, suggesting that institutional investors use their size to extract markups in rental markets. I replicate this evidence in a stylized model of the residential housing market in which funding-constrained households bid against unconstrained investors.
Abstract
This paper provides causal evidence that benchmarking-induced asset price distortions have real effects on corporate investment. We exploit exogenous variation in stocks' benchmarking intensity around Russell index reconstitutions to establish causality. We find that increased exposure to benchmark-linked capital flows causes stocks' CAPM β to rise. Firm managers perceive this as an increase in their cost of capital and reduce investment. Treated firms have 7.1% less physical and 8.4% less intangible capital after six years. At the aggregate level, the asset price distortions caused by benchmarking can explain 10.7% lower capital accumulation from 2000 to 2016. Our findings highlight how benchmark-linked investing affects capital allocation in the real economy.
(* presentation by co-author)
Work in progress
-
Resilient traders make safer assets
-
Explaining Prices (with Christian Kontz and Hanno Lustig)
-
Human capital investment with declining interest rates
Abstract
This paper documents that the sectoral profile of a country in the global trade and production network generates cross-sectional variation in trade elasticities with respect to aggregate income. Countries that export (import) goods and services with high income elasticities, such as commodities or durables, are more (less) exposed to global business cycle shocks, appreciate (depreciate) during global expansions and depreciate (appreciate) in global downturns. Conversely, countries that export (import) goods and services with low income elasticities, such as tradable services, are less (more) exposed to global business cycle shocks, depreciate (appreciate) in global expansions and appreciate (depreciate) in global downturns. This gives rise to a ``trade carry trade'' that explains real interest rate differentials, carry trade returns and exchange rate volatilities across countries and currencies. I verify the intuition of this mechanism by estimating trade elasticities with respect to aggregate income in the OECD input-output tables.