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 documents a novel channel through which the benchmarking of fund managers affects firm behavior. Using a difference-in-differences design, we show that increases in a stock’s benchmarking intensity cause its CAPM β to rise. Stocks with a benchmarking intensity increase of more than 5 percentage points due to index inclusion subsequently have 15% higher CAPM βs. These changes in CAPM βs are not driven by changes in firm fundamentals and persist for at least seven years. Using an instrumental variable design, we find that firms with higher CAPM βs due to index inclusion reduce investment and have 7.1% less physical capital after six years. Instead of investing, these firms hold more cash and gradually increase payouts to shareholders. Consistent with this mechanism, we show that increasing benchmarking intensity predicts a higher perceived cost of capital by firm managers. From 2000 to 2016, increases in CAPM βs due to higher benchmarking caused a 7.6% reduction in capital accumulation at the aggregate level. Our findings highlight the significant influence of fund manager benchmarking on firm behavior and real quantities through changes in the perceived cost of capital.
Work in progress
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