Publications
36 results found
Kiyotaki N, Michaelides A, Nikolov K, 2024, Housing, distribution and welfare, Journal of Money, Credit and Banking, ISSN: 0022-2879
Housing is a long-lived asset whose value is sensitive to variations in expectations of long-run growth rates and interest rates. When a large fraction of households has leverage, housing price fluctuations cause large-scale redistribution and consumption volatility. We find that a practical way to insure the young and the poor from the housing market fluctuations is through a well-functioning rental market. In practice, homeownership subsidies keep the rental market small and the housing cycle affects aggregate consumption. Removing homeownership subsidies hurts old homeowners, while leverage limits hurt young homeowners.
Bonaparte Y, Korniotis GM, Kumar A, et al., 2024, Stock market ownership transitions, Management Science, ISSN: 0025-1909
A significant portion of U.S. households enters and exits investment accounts. Empirically,income and wealth changes are related to these transitions, with income changes not af-fecting the retired. We find that a life-cycle model with participation costs cannot matchthe observed ownership dynamics. An extension with a stock-market crash fits better theaverage participation rate and the ownership transitions of the middle-aged and retired, butnot the ownership dynamics of the young, which is better captured by a model with elevatedincome risk. Overall, across the life-cycle, ownership transitions respond to wealth shocks inboth model and data.
Gomes F, Michaelides A, Zhang Y, 2022, Tactical target date funds, Management Science, Vol: 68, Pages: 2377-3174, ISSN: 0025-1909
We propose target date funds modified to exploit stock return predictability driven by the variance risk premium. The portfolio rule of these tactical target date funds (TTDFs) is extremely simplified relative to the optimal one, making it easy to implement and to communicate to investors. We show that saving for retirement in TTDFs generates economically large welfare gains, even after we introduce turnover restrictions and transaction costs, and after taking into account parameter uncertainty. This predictability also appears to be uncorrelated with individual household risk, suggesting that households are in a prime position to exploit it.
Michaelides A, Zhang Y, 2022, Life-cycle portfolio choice with imperfect predictors, Journal of Banking and Finance, Vol: 135, Pages: 1-22, ISSN: 0378-4266
We study quantitatively how uncertainty in expected stock return predictability affects life-cycle portfolio choice and wealth accumulation in the presence of undiversifiable labor income risk. Households filter information about future expected returns from observed predictors and realized stock returns. Therefore, optimal portfolio choice does not only depend on financial wealth and age, as in more traditional life-cycle models. Counterfactuals demonstrate the magnitude of portfolio demand changes that depend on perceptions about underlying expected returns. On average, life-cycle asset allocation becomes more conservative than models with either i.i.d. stock returns, or with clearer signals about expected stock returns.
Coutinho L, Georgiou D, Heracleous M, et al., 2022, Limiting fiscal procyclicality: Evidence from resource-dependent countries, ECONOMIC MODELLING, Vol: 106, ISSN: 0264-9993
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- Citations: 3
Coutinho L, Georgiou D, Heracleous M, et al., 2021, Limiting Fiscal Procyclicality: Evidence from Resource-Dependent Countries, Publisher: Elsevier
We provide evidence that fiscal policy in resource-dependent countries is procyclical. The empirical analysis reveals that on average real government consumption in these countries tends to significantly rise (fall) in good (bad) times. To control for endogeneity we use an instrumental variable for GDP growth that arises naturally, namely the growth in commodity prices of the main natural resource export. We also find that fiscal policy procyclicality is lower in more democratic regimes, and in countries with stronger checks and balances on the executive. Operating a sovereign wealth fund can help limit fiscal policy procyclicality in some instances, while we find no such evidence for fiscal rules.
Gabudean R, Gomes F, Michaelides A, et al., 2021, On optimal allocations of target-date funds, The Journal of Retirement, Vol: 9, Pages: 58-79, ISSN: 2326-6899
We study optimal life-cycle portfolio allocation and its application to target-date fund (TDF) design. We show that optimal TDF allocation must be explicitly linked to a savings rate; for example, a higher savings rate generating higher financial wealth accumulation should necessarily come with a more conservative TDF. Further, we quantify the extent to which accumulated wealth, the investing environment, and participant characteristics affect TDF allocations and compare the resulting optimal allocations against the observed universe of US TDF products. Plan sponsors and asset managers can use these findings to improve TDF selection and design.
Mankart J, Michaelides A, Pagratis S, 2020, Bank capital buffers in a dynamic model, Financial Management, Vol: 49, Pages: 473-502, ISSN: 0046-3892
We estimate a dynamic structural banking model to examine the interaction between risk-weighted capital adequacy and unweighted leverage requirements, their differential impacton bank lending, and equity buffer accumulation in excess of regulatory minima. Tighterrisk-weighted capital requirements reduce loan supply and lead to an endogenous fall inbank profitability, reducing bank incentives to accumulate equity buffers and, therefore,increasing the incidence of bank failure. Tighter leverage requirements, on the other hand,increase lending, preserve bank charter value and incentives to accumulate equity buffers,therefore leading to lower bank failure rates.
Michaelides A, Milidonis A, Nishiotis G, 2019, Private information in currency markets, Journal of Financial Economics, Vol: 131, Pages: 643-665, ISSN: 0304-405X
Using daily abnormal currency returns for the universe of countries with flexible exchange rates, we show local currency depreciations ahead of unscheduled, public sovereign debt downgrade announcements. Consistent with the private information hypothesis, the effect is stronger in lower institutional quality countries and holds after we control for concurrent public information and for publicly available rumors about the forthcoming downgrades. Our results persist when abnormal currency returns are adjusted for global carry and dollar risk factors, world equity and bond returns, as well as local stock market returns. Finally, the currency depreciations are permanent, providing evidence for a link between fundamentals and currency markets.
Haliassos M, Michaelides A, 2019, Asset and Debt Participation of Households: Opportunities and Challenges in Eliminating Borders, Conference on Capital Market Union and Beyond, Publisher: MIT PRESS, Pages: 113-126
Michaelides A, Zhang Y, 2017, Stock market mean reversion and portfolio choice over the life cycle, Journal of Financial and Quantitative Analysis, Vol: 52, Pages: 1183-1209, ISSN: 0022-1090
We solve for optimal consumption and portfolio choice in a life-cycle model with short-sales and borrowing constraints; undiversifiable labor income risk; and a predictable, time-varying, equity premium and show that the investor pursues aggressive market timing strategies. Importantly, in the presence of stock market predictability, the model suggests that the conventional financial advice of reducing stock market exposure as retirement approaches is correct on average, but ignoring changing market information can lead to substantial welfare losses. Therefore, enhanced target-date funds (ETDFs) that condition on expected equity premia increase welfare relative to target-date funds (TDFs). Out-of-sample analysis supports these conclusions.
Sambanis N, Michaelides A, 2017, A Comment on Diagnostic Tools for Counterfactual Inference, POLITICAL ANALYSIS, Vol: 17, Pages: 89-106, ISSN: 1047-1987
Michaelides A, 2016, Cyprus: From Boom to Bail-In, Cyprus Bail-in, The: Policy Lessons From The Cyprus Economic Crisis, Pages: 103-162, ISBN: 9781783268764
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- Citations: 2
Michaelides A, Orphanides A, 2016, Introduction, Cyprus Bail-in, The: Policy Lessons From The Cyprus Economic Crisis, Pages: ix-xiii
Michaelides A, Orphanides A, 2016, Cyprus Bail-in, The: Policy Lessons From The Cyprus Economic Crisis, ISBN: 9781783268764
On June 28th 2012, the small island of Cyprus became the fifth government to request an economic bail-out from the Eurozone after losing access to international capital markets. Less than a year later, a €10 billion second rescue deal was agreed upon - an unprecedented agreement that bailed in creditors of Cyprus’ two largest banks, and triggered an economic crisis that the nation still struggles to recover from today. This resourceful collection of essays provides a thorough and in depth analysis of how Cyprus reached the point of failure and what lessons this experience holds for future economic crises. The various perspectives collectively address unanswered questions, including whether the bail-in can be considered successful, why the recession was less severe than expected, and what conclusions can be drawn about stress-testing exercises across borders. Focusing on one of the (proportionately) largest crises in financial history, the case study will prove essential to policy-makers and politicians, especially in the euro area.
Calvet L, Haliassos M, Michaelides A, 2015, Introduction to JPEF special issue on household finance, Journal of Pension Economics & Finance, Vol: 14, Pages: 329-331, ISSN: 1474-7472
Michaelides A, Milidonis A, Nishiotis G, et al., 2015, The adverse effects of systematic leakage ahead of official sovereign debt rating announcements, Journal of Financial Economics, Vol: 116, Pages: 526-547, ISSN: 0304-405X
Rating agencies consult with local government officials several days prior to official announcements of sovereign debt rating changes, making information leakage likely. Using cross-country data from 1988 to 2012, we find evidence of information leakage. In particular, we find statistically and economically significant negative daily abnormal stock index returns prior to downgrade announcements. These effects are more pronounced in countries with lower institutional quality, and they persist during times with no downgrade rumors and no concurrent bad news in general. A mild post-announcement reversal consistent with overreaction to pre-event downgrade rumors highlights the adverse effects of such leakage and, thus, should be a policy concern for capital market regulators.
Michaelides A, 2014, Cyprus: from boom to bail-in, Economic Policy, Vol: 29, Pages: 639-689, ISSN: 0266-4658
Gomes F, Michaelides A, Polkovnichenko V, 2013, Fiscal Policy and Asset Prices with Incomplete Markets, REVIEW OF FINANCIAL STUDIES, Vol: 26, Pages: 531-566, ISSN: 0893-9454
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- Citations: 23
Inkmann J, Michaelides A, 2012, Can the Life Insurance Market Provide Evidence for a Bequest Motive?, JOURNAL OF RISK AND INSURANCE, Vol: 79, Pages: 671-695, ISSN: 0022-4367
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- Citations: 31
Kiyotaki N, Michaelides A, Nikolov K, 2011, Winners and Losers in Housing Markets, JOURNAL OF MONEY CREDIT AND BANKING, Vol: 43, Pages: 255-296, ISSN: 0022-2879
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- Citations: 118
Inkmann J, Lopes P, Michaelides A, 2011, How Deep Is the Annuity Market Participation Puzzle?, REVIEW OF FINANCIAL STUDIES, Vol: 24, Pages: 279-319, ISSN: 0893-9454
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- Citations: 109
Grant C, Koulovatianos C, Michaelides A, et al., 2010, EVIDENCE ON THE INSURANCE EFFECT OF REDISTRIBUTIVE TAXATION, REVIEW OF ECONOMICS AND STATISTICS, Vol: 92, Pages: 965-973, ISSN: 0034-6535
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- Citations: 8
Gomes F, Michaelides A, Polkovnichenko V, 2009, Optimal savings with taxable and tax-deferred accounts, REVIEW OF ECONOMIC DYNAMICS, Vol: 12, Pages: 718-735, ISSN: 1094-2025
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- Citations: 39
Gomes F, Michaelides A, 2008, Asset Pricing with Limited Risk Sharing and Heterogeneous Agents, Review of Financial Studies, Vol: 21, Pages: 415-448, ISSN: 0893-9454
Lopes P, Michaelides A, 2007, Rare events and annuity market participation, Finance Research Letters, Vol: 4, Pages: 82-91, ISSN: 1544-6123
We investigate whether a rare event (like the default of the annuity provider) can explain the annuity market participation puzzle. High risk aversion is needed to change behavior in the presence of such a disastrous shock but higher risk aversion also makes annuities more valuable. Therefore, these rare events are unlikely candidates to explain the low take-up of voluntary annuities: the conclusion is robust to disentangling risk aversion from intertemporal substitution and to allowing portfolio investment in a stock market index. © 2007 Elsevier Inc. All rights reserved.
Gomes F, Michaelides A, 2005, Optimal life-cycle asset allocation: Understanding the empirical evidence, JOURNAL OF FINANCE, Vol: 60, Pages: 869-904, ISSN: 0022-1082
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- Citations: 228
Michaelides A, 2003, International portfolio choice, liquidity constraints and the home equity bias puzzle, JOURNAL OF ECONOMIC DYNAMICS & CONTROL, Vol: 28, Pages: 555-594, ISSN: 0165-1889
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- Citations: 11
Gomes F, Michaelides A, 2003, Portfolio choice with internal habit formation: a life-cycle model with uninsurable labor income risk, REVIEW OF ECONOMIC DYNAMICS, Vol: 6, Pages: 729-766, ISSN: 1094-2025
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- Citations: 52
Michaelides A, 2003, A reconciliation of two alternative approaches towards buffer stock saving, ECONOMICS LETTERS, Vol: 79, Pages: 137-143, ISSN: 0165-1765
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- Citations: 2
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