Tornado Activity, House Price and Stock Returns
Michael Donadelli, Michael Ghisletti, Marcus Jüppner, Antonio Paradiso
North American Journal of Economics and Finance,
April
2020
Abstract
In this paper we investigate the effects of tornado activity on house prices and stock returns in the US. First, using geo-referenced and metropolitan statistical area (MSA)-level data, we find tornado activity to be responsible for a significant drop in house prices. Spillover tornado effects between adjacent MSAs are also detected. Furthermore, our granular analysis provides evidence of tornadoes having a negative impact on stock returns. However, only two sectors seem to contribute to such a negative effect (i.e., consumer discretionary and telecommunications). In a macro-analysis, which relies on aggregate data for the South, West, Midwest and Northeast US regions, we then show that tornado activity generates a significant drop in house prices only in the South and Midwest. In these regions, tornadoes are also responsible for a drop in income. Tornado activity is finally found to positively (negatively) affect stock returns in the Midwest (South). If different sectors are examined, a more heterogeneous picture emerges.
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HIP, RIP, and the Robustness of Empirical Earnings Processes
Florian Hoffmann
Quantitative Economics,
No. 3,
2019
Abstract
The dispersion of individual returns to experience, often referred to as heterogeneity of income profiles (HIP), is a key parameter in empirical human capital models, in studies of life‐cycle income inequality, and in heterogeneous agent models of life‐cycle labor market dynamics. It is commonly estimated from age variation in the covariance structure of earnings. In this study, I show that this approach is invalid and tends to deliver estimates of HIP that are biased upward. The reason is that any age variation in covariance structures can be rationalized by age‐dependent heteroscedasticity in the distribution of earnings shocks. Once one models such age effects flexibly the remaining identifying variation for HIP is the shape of the tails of lag profiles. Credible estimation of HIP thus imposes strong demands on the data since one requires many earnings observations per individual and a low rate of sample attrition. To investigate empirically whether the bias in estimates of HIP from omitting age effects is quantitatively important, I thus rely on administrative data from Germany on quarterly earnings that follow workers from labor market entry until 27 years into their career. To strengthen external validity, I focus my analysis on an education group that displays a covariance structure with qualitatively similar properties like its North American counterpart. I find that a HIP model with age effects in transitory, persistent and permanent shocks fits the covariance structure almost perfectly and delivers small and insignificant estimates for the HIP component. In sharp contrast, once I estimate a standard HIP model without age‐effects the estimated slope heterogeneity increases by a factor of thirteen and becomes highly significant, with a dramatic deterioration of model fit. I reach the same conclusions from estimating the two models on a different covariance structure and from conducting a Monte Carlo analysis, suggesting that my quantitative results are not an artifact of one particular sample.
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Motivating High‐impact Innovation: Evidence from Managerial Compensation Contracts
Bill Francis, Iftekhar Hasan, Zenu Sharma, Maya Waisman
Financial Markets, Institutions and Instruments,
No. 3,
2019
Abstract
We investigate the relationship between Chief Executive Officer (CEO) compensation and firm innovation and find that long‐term incentives in the form of options, especially unvested options, and protection from managerial termination in the form of golden parachutes are positively related to corporate innovation, and particularly to high‐impact, exploratory (new knowledge creation) invention. Conversely, non‐equity pay has a detrimental effect on the input, output and impact of innovation. Tests using the passage of an option expensing regulation (FAS 123R) as an exogenous shock to option compensation suggest a causal interpretation for the link between long‐term pay incentives, patents and citations. Furthermore, we find that the decline in option pay following the implementation of FAS 123R has led to a significant reduction in exploratory innovation and therefore had a detrimental effect on innovation output. Overall, our findings support the idea that compensation contracts that protect from early project failure and incentivize long‐term commitment are more suitable for inducing high‐impact corporate innovation.
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Structural Stability of the Research & Development Sector in European Economies Despite the Economic Crisis
Jutta Günther, Maria Kristalova, Udo Ludwig
Journal of Evolutionary Economics,
No. 5,
2019
Abstract
When an external shock such as the economic crisis in 2008/2009 occurs, the interconnectedness of sectors can be affected. This paper investigates whether the R&D sector experienced changes in its sectoral integration through the recession. Based on an input-output analysis, it can be shown that the linkages of the R&D sector with other sectors remain stable. In some countries, the inter-sectoral integration becomes even stronger. Policy makers can be encouraged to use public R&D spending as a means of fiscal policy against an economic crisis.
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Benchmark on Themselves: CEO-directors’ Influence on the CEO Compensation
Bill Francis, Iftekhar Hasan, Yun Zhu
Managerial Finance,
No. 7,
2019
Abstract
The purpose of this paper is to examine whether or not the chief executive officers’ (CEO) compensation is affected by the compensation of the outside directors sitting on their board, who are also CEOs of other firms.
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Does Extended Unemployment Benefit Duration Ameliorate the Negative Employment Effects of Job Loss?
Daniel Fackler, Jens Stegmaier, Eva Weigt
Labour Economics,
2019
Abstract
We study the effect of job displacement due to bankruptcies on earnings and employment prospects of displaced workers and analyse whether extended potential unemployment benefit duration (PBD) ameliorates the negative consequences of job loss. Using German administrative linked employer-employee data, we find that job loss has long-lasting negative effects on earnings and employment. Displaced workers also more often end up in irregular employment relationships (part-time, marginal part-time employment, and temporary agency work) than their non-displaced counterparts. Applying a regression discontinuity approach that exploits a three months PBD extension at the age threshold of 50 we find hardly any effects of longer PBD on labour market outcomes of displaced workers.
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Wage Delegation in the Field
Sabrina Jeworrek, Vanessa Mertins
Journal of Economics and Management Strategy,
No. 4,
2019
Abstract
By conducting a natural field experiment, we analyze the managerial policy of delegating the wage choice to employees. We find that this policy enhances performance significantly, which is remarkable since allocated wage premiums of the same size have no effect at all. Observed self‐imposed wage restraints and absence of negative peer effects speak in favor of wage delegation, although the chosen wage premium levels severely dampen its net value. Additional experimental and survey data provide important insights into employees' underlying motivations.
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Exporting Liquidity: Branch Banking and Financial Integration
Erik P. Gilje, Elena Loutskina, Philip E. Strahan
Journal of Finance,
No. 3,
2016
Abstract
Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard‐to‐securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets.
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Mortgage Companies and Regulatory Arbitrage
Yuliya Demyanyk, Elena Loutskina
Journal of Financial Economics,
No. 2,
2016
Abstract
Mortgage companies (MCs) do not fall under the strict regulatory regime of depository institutions. We empirically show that this gap resulted in regulatory arbitrage and allowed bank holding companies (BHCs) to circumvent consumer compliance regulations, mitigate capital requirements, and reduce exposure to loan-related losses. Compared to bank subsidiaries, MC subsidiaries of BHCs originated riskier mortgages to borrowers with lower credit scores, lower incomes, higher loan-to-income ratios, and higher default rates. Our results imply that precrisis regulations had the capacity to mitigate the deterioration of lending standards if consistently applied and enforced for all types of intermediaries.
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Fiscal Stimulus and Consumer Debt
Yuliya Demyanyk, Elena Loutskina, Daniel Murphy
Review of Economics and Statistics,
No. 4,
2019
Abstract
In the aftermath of the consumer debt–induced recession, policymakers have questioned whether fiscal stimulus is effective during periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2007–2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer debt. The results suggest that in the short term (2007–2009), fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to show that both heterogeneous marginal propensities to consume and slack-driven economic mechanisms contribute to the debt-dependent multiplier.
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