59 results found
Ramadorai T, Zeni F, 2023, Climate regulation and emissions abatement: theory and evidence from firms’ disclosures, Management Science, ISSN: 0025-1909
We measure firms’ beliefs about climate regulation, plans for future abatement, and current emissions mitigation from responses to the Carbon Disclosure Project. These measures vary strikingly around the Paris announcement. A dynamic model of a representative firm facing a future carbon levy, trading o↵abatement and capital growth, and facing convex adjustment costs cannot fit the data. A two-firm model with cross-firm reputational externalities, heterogeneous beliefs over climate regulation, and leader-follower interactions does. Out-of-sample, the modelpredicts firms’ reactions when the US exits the Paris agreement. Firms’ beliefs about climate regulation strongly a↵ects abatement, and cross-firm interactions amplify regulatory impacts.
Balasubramaniam V, Campbell JY, Ramadorai T, et al., 2023, Who Owns What? A Factor Model for Direct Stockholding, Journal of Finance, Vol: 78, Pages: 1545-1591, ISSN: 0022-1082
We build a cross-sectional factor model for investors' direct stockholdings and estimate it using data from almost 10 million retail accounts in the Indian stock market. Our model identifies strong investor clienteles for stock characteristics, most notably firm age and share price, and for particular clusters of stock characteristics. These clienteles are intuitively associated with investor attributes such as account age, size, and diversification. Coheld stocks tend to have higher return covariance, inconsistent with simple models of diversification but suggestive that clientele demands influence stock returns.
We quantify reference dependence and loss aversion in the housing market using rich Danish administrative data. Our structural model includes loss aversion,reference dependence, fnancial constraints, and a sale decision, and matches keynonparametric moments, including a “hockey stick” in listing prices with nominalgains, and bunching at zero realized nominal gains. Households derive substantialutility from gains over the original house purchase price; losses afect householdsroughly 2.5 times more than gains. The model helps explain the positive correlationbetween aggregate house prices and turnover, but cannot explain visible attenuationin reference dependence when households are more fnancially constrained.
Badarinza C, Ramadorai T, Shimizu C, 2022, Gravity, counterparties, and foreign investment, JOURNAL OF FINANCIAL ECONOMICS, Vol: 145, Pages: 132-152, ISSN: 0304-405X
Fuster A, Goldsmith-Pinkham P, Ramadorai T, et al., 2022, Predictably unequal? The effect of machine learning on credit markets, The Journal of Finance, Vol: 77, Pages: 5-47, ISSN: 0022-1082
Innovations in statistical technology have sparked concerns about distributional impacts across categories such as race and gender. Theoretically, as statistical technology improves, distributional consequences depend on how changes in functional forms interact with cross-category distributions of observable characteristics. Using detailed administrative data on US mortgages, we embed the predictions of traditional logit and more sophisticated machine-learning default prediction models into a simple equilibrium credit model. Machine learning models slightly increase credit provision overall, but increase rate disparity between and within groups; effects mainly arise from flexibility to uncover structural relationships between default and observables, rather than from triangulation of excluded characteristics. We predict that Black and Hispanic borrowers are disproportionately less likely to gain from new technology.
Balasubramaniam V, Campbell JY, Ranish B, et al., 2021, Who Owns What? A Factor Model for Direct Stockholding, SSRN Electronic Journal
Gomes F, Haliassos M, Ramadorai T, 2021, Household finance, Journal of Economic Literature, Vol: 59, Pages: 919-1000, ISSN: 0022-0515
Household financial decisions are complex, interdependent, and heterogeneous, and central to the functioning of the financial system. We present an overview of the rapidly expanding literature on household finance (with some important exceptions) and suggest directions for future research. We begin with the theory and empirics of asset market participation and asset allocation over the life cycle. We then discuss household choices in insurance markets, trading behavior, decisions on retirement saving, and financial choices by retirees. We survey research on liabilities, including mortgage choice, refinancing, and default, and household behavior in unsecured credit markets, including credit cards and payday lending. We then connect the household to its social environment, including peer effects, cultural and hereditary factors, intra-household financial decision making, financial literacy, cognition and educational interventions. We also discuss literature on the provision and consumption of financial advice.
Ramadorai T, Anagol S, Balasubramaniam V, 2021, Learning from noise: evidence from India’s IPO lotteries, Journal of Financial Economics, Vol: 140, Pages: 965-986, ISSN: 0304-405X
We study a natural experiment in which 1.5 million investors participate in allocation lotteries for Indian IPO stocks. Randomized IPO gains cause winning investors to increase applications to future IPOs and substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are symmetrically negative for experienced losses. Investors who have received multiple past IPO allocations show smaller responses, suggesting learning/selection moderates responses to noise shocks. The evidence is most consistent with investors learning about their own ability from experienced noise, drawing inferences about their skill from luck.
Babina T, Jotikasthira C, Lundblad C, et al., 2021, Heterogeneous taxes and limited risk sharing: evidence from municipal bonds, The Review of Financial Studies, Vol: 34, Pages: 509-568, ISSN: 0893-9454
We evaluate the impacts of tax policy on asset returns using the U.S. municipal bond market. In theory, tax-induced ownership segmentation limits risk sharing, creating downward-sloping regions of the aggregate demand curve for the asset. In the data, cross-state variation in tax privilege policies predicts differences in in-state ownership of local municipal bonds; the policies create incentives for concentrated local ownership. High tax privilege states have muni bond yields that are more sensitive to variations in supply and local idiosyncratic risk. The effects are stronger when local investors face correlated background risk and/or diminishing marginal nonpecuniary benefits from holding local assets.
de Montjoye Y-A, Ramadorai T, Valletti T, et al., 2021, Privacy, adoption, and truthful reporting: A simple theory of contact tracing applications, Economics Letters, Vol: 198, Pages: 1-4, ISSN: 0165-1765
This paper analyzes the trade-offs associated with the deployment of contact tracing applications to support policy responses in a pandemic. In many jurisdictions, the government cannot force individuals to adopt such applications. We therefore analyze a simple model that highlights the importance of individuals’ incentives to voluntarily adopt a reporting application and reveal their infection status to the government who can then undertake contact monitoring. We discuss the consequences of various policy options, such as security, communication and anonymization policies, in terms of the size and representativeness of the sample of infection data that contract tracing applications generate.
Andersen S, Campbell JY, Nielsen KM, et al., 2020, Sources of inaction in household finance: evidence from the Danish mortgage markets, The American Economic Review, Vol: 110, Pages: 3184-3230, ISSN: 0002-8282
We build an empirical model to attribute delays in mortgage refinancing to psychological costs inhibiting refinancing until incentives are sufficiently strong; and behavior, potentially attributable to information-gathering costs, lowering the probability of household refinancing per unit time at any incentive. We estimate the model on administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less-educated households refinance with lower probability irrespective of incentives, thereby achieving lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.
Campbell JY, Ramadorai T, Ranish B, 2019, Do the rich get richer in the stock market? evidence from India, AMERICAN ECONOMIC REVIEW-INSIGHTS, Vol: 1, Pages: 225-240, ISSN: 2640-205X
We use data on Indian stock portfolios to show that return heterogeneity is the primary contributor to increasing inequality of wealth held in risky assets by Indian individual investors. Return heterogeneity increases equity wealth inequality through two main channels, both of which are related to the prevalence of undiversified accounts that own relatively few stocks. First, some undiversified portfolios randomly do well, while others randomly do poorly. Second, larger accounts diversify more effectively and thereby earn higher average log returns even though their average simple returns are no higher than those of smaller accounts.
Babina T, Jotikasthira C, Lundblad CT, et al., 2019, Heterogeneous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds, Publisher: SSRN
We evaluate the impacts of tax policy on asset returns using the U.S. municipal bond market. In theory, tax-induced ownership segmentation limits risk-sharing, creating downward-sloping regions of the aggregate demand curve for the asset. In the data, cross-state variation in tax privilege policies predicts differences in in-state ownership of local municipal bonds; the policies create incentives for concentrated local ownership. High tax privilege states have muni bond yields that are more sensitive to variations in supply and local idiosyncratic risk. The effects are stronger when local investors face correlated background risk and/or diminishing marginal non-pecuniary benefits from holding local assets.
Badarinza C, Balasubramaniam V, Ramadorai T, 2019, The Household Finance Landscape in Emerging Economies, ANNUAL REVIEW OF FINANCIAL ECONOMICS, VOL 11, Editors: Lo, Merton, Publisher: ANNUAL REVIEWS, Pages: 109-129
Badarinza C, Ramadorai T, 2018, Home away from home? Foreign demand and London house prices, Journal of Financial Economics, Vol: 130, Pages: 532-555, ISSN: 0304-405X
Identifying the effects of “flights to safety” on asset prices using pure time-series methods is difficult because crises are infrequent. We develop a new cross-sectional identification approach, motivated by the insight that investors may differ in their “preferred habitats” within a broad asset class. We apply the method to the question of whether foreign capital is responsible for residential real estate price movements in global cities such as London and New York, especially during crises. Using large data sets of housing transactions, we find that foreign risk strongly affects London house prices. The effects are long-lasting, and are associated with both safe-haven effects and immigration.
Anagol S, Balasubramaniam V, Ramadorai T, 2018, Endowment effects in the field: Evidence from India's IPO lotteries, Review of Economic Studies, Vol: 85, Pages: 1971-2004, ISSN: 1467-937X
We study a unique field experiment in India in which 1.5 million stock investors face lotteries for the random allocation of shares. We find that the winners of these randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold them than lottery losers 1, 6, and even 24 months after the random allocation. This finding strongly evokes laboratory findings of an “endowment effect” for risky gambles, and persists in samples of highly active investors, suggesting along with additional evidence that this behaviour is not driven by inertia alone. The effect decreases as experience in the IPO market increases, but remains even for very experienced investors. Leading theories of the endowment effect based on reference-dependent preferences are unable to fully explain these and other findings in the data.
Badarinza C, Campbell JY, Ramadorai T, 2018, What calls to ARMs? International evidence on interest rates and the choice of Adjustable-Rate Mortgages, Management Science, Vol: 64, Pages: 2275-2288, ISSN: 0025-1909
The relative popularity of adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) varies considerably both across countries and over time. We ask how movements in current and expected future interest rates affect the share of ARMs in total mortgage issuance. Using a nine-country panel and instrumental variables methods, we present evidence that near-term (one-year) rational forecasts of future movements in ARM rates do affect mortgage choice, particularly in more recent data since 2001. However, longer-term (three-year) rational forecasts of ARM rates have a relatively weak effect, and the current spread between FRM and ARM rates also matters, suggesting that households are concerned with current interest costs as well as with lifetime cost minimization. These conclusions are robust to alternative (adaptive and survey-based) models of household expectations.
Ramadorai T, Babina T, Jotikasthira P, et al., 2017, Heterogeneous taxes and limited risk sharing: Evidence from municipal bonds, 2017, with Tania Babina, Pab Jotikasthira and Chris Lundblad.
Ramadorai T, Andersen S, Campbell JY, et al., 2017, Inattention and inertia in household finance: Evidence from the Danish mortgage market, 2017, with Steffen Andersen, John Y. Campbell, and Kasper Meisner-Nielsen.
Badarinza C, Campbell JY, Ramadorai T, 2016, International Comparative Household Finance, Annual Review of Economics, Vol: 8, Pages: 111-144, ISSN: 1941-1383
This article reviews the literature on international comparative household finance. It presents summary statistics on household balance sheets for 13 developed countries and uses these statistics to discuss common features and contrasts across countries. It then discusses retirement savings, investments in risky assets, unsecured debt, and mortgages.
Ramadorai T, Anagol S, Balasubramaniam V, 2016, Endowment effects in the field: Evidence from India's IPO lotteries, 2016, with Santosh Anagol and Vimal Balasubramaniam. Revise and Resubmit, Review of Economic Studies
Della Corte P, Ramadorai T, Sarno L, 2016, Volatility risk premia and exchange rate predictability, Journal of Financial Economics, Vol: 120, Pages: 21-40, ISSN: 0304-405X
We discover a new currency strategy with highly desirable return and diversification properties, which uses the predictive ability of currency volatility risk premia for currency returns. The volatility risk premium—the difference between expected realized volatility and model-free implied volatility—reflects the costs of insuring against currency volatility fluctuations. The strategy sells high insurance-cost currencies and buys low insurance-cost currencies. A distinctive feature of the strategy’s returns is that they are mainly generated by movements in spot exchange rates instead of interest rate differentials. We explore explanations for the profitability of the strategy, which cannot be understood using traditional risk factors.
Kruttli MS, Patton AJ, Ramadorai T, 2015, The Impact of Hedge Funds on Asset Markets, REVIEW OF ASSET PRICING STUDIES, Vol: 5, Pages: 185-226, ISSN: 2045-9920
Campbell JY, Ramadorai T, Ranish B, 2015, The Impact of Regulation on Mortgage Risk: Evidence from India, AMERICAN ECONOMIC JOURNAL-ECONOMIC POLICY, Vol: 7, Pages: 71-102, ISSN: 1945-7731
Patton AJ, Ramadorai T, Streatfield M, 2015, Erratum: Change you can believe in? Hedge fund data revisions, The Journal of Finance, Vol: 70, Pages: 1862-1862, ISSN: 0022-1082
The editor regrets an error in the Patton, Ramadorai and Streatfield article (2015) in the June 2015 issue. On page 997, the name of the Acting Editor was misspelled; the correct spelling is William Goetzmann.
Ramadorai T, Anagol S, Balasubramaniam V, 2015, The effects of experience on investor behavior: Evidence from India's IPO lotteries, 2015, with Santosh Anagol and Vimal Balasubramaniam.
Ramadorai T, Brusa F, Verdelhan A, 2015, The international CAPM redux, 2015, with Francesca Brusa and Adrien Verdelhan.
Patton AJ, Ramadorai T, Streatfield M, 2015, Change you can believe in? Hedge fund data revisions, The Journal of Finance, Vol: 70, Pages: 963-999, ISSN: 0022-1082
We analyze the reliability of voluntary disclosures of financial information, focusing on widely‐employed publicly‐available hedge fund databases. Tracking changes to statements of historical performance recorded between 2007 and 2011, we find that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Funds that revise their performance histories significantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for investors. These results speak to current debates about mandatory disclosures by financial institutions to market regulators.
Albuquerque R, Ramadorai T, Watugala SW, 2015, Trade credit and cross-country predictable firm returns, Journal of Financial Economics, Vol: 115, Pages: 592-613, ISSN: 0304-405X
We investigate the role of trade credit links in generating cross-border return predictability between international firms. Using data from 43 countries from 1993 to 2009, we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable based on the returns of their associated customer countries. This behavior is especially prevalent among firms with high levels of foreign sales. To better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links. The model offers further predictions about this phenomenon, including stronger predictability during periods of high credit constraints and low uninformed trading volume. We find supportive empirical evidence for these predictions.
Andersen S, Campbell JY, Nielsen KM, et al., 2014, Sources of inaction in household finance: evidence from the Danish mortgage market, Publisher: SSRN
We build an empirical model to attribute delays in mortgage refinancing to psychological refinancing costs that inhibit refinancing until incentives are strong enough; and to behavior---potentially attributable to information-gathering costs---that lowers the probability that a household refinances in a given period at any incentive. We estimate the model on high-quality administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less educated households refinance with lower probability irrespective of incentives, and thereby achieve lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.
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