Research
Working Papers
Institutional investors in the market for single-family housing: Where did they come from, where did they go? (SSRN)
- 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''. I provide new causally identified evidence on the cause of this phenomenon and its long-term effects on impacted neighborhoods. I document a large and unprecedented rise in expected excess returns to single-family rentals that explains the entry decisions of Wall Street Landlords across time and geographies, as well as their historical absence from this market. Declining long-term interest rates and tightened household borrowing constraints in the aftermath of the housing bust causally explain the rise in expected excess returns and capture over 58% of the variation in expected excess returns. The entry of Wall Street Landlords into a neighborhood has a causal positive effect on local house prices and rents that leads to a decline in housing affordability and home-ownership rates. This effect is increasing in the share of Wall Street Landlord-owned housing stock (''treatment intensity''). A stylized model with funding constrained households and an unconstrained investor generates predictions consistent with the empirical evidence.
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.
Work in progress
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Resilient traders make safe assets
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Explaining Prices (with Christian Kontz and Hanno Lustig)