Using Market Expectations to Test for Speculative Bubbles in the Crude Oil Market

The wide fluctuations of oil prices from 2003 to 2008 have attracted the interest of academics and policymakers. A popular view is that these fluctuations were caused by speculative bubbles due to the increased financialization of oil futures markets. This hypothesis, however, is difficult to examine since the fundamental price of oil is unobservable and, therefore, econometric evidence in favor of bubbles may actually be due to misspecified market fundamentals. In this paper, we extend two recently proposed methodologies for bubble detection that alleviate this problem by using market expectations of future prices. Both methodologies provide no evidence of speculative bubbles.     

Presidential Address: Pension Policy and the Financial System

In this paper, I examine the effect of pension policy on the structure of financial systems around the world. In particular, I explore the hypothesis that policies that promote pension savings also promote the development of capital markets. I present a model that endogenizes the extent to which savings are intermediated through banks or capital markets, and derive implications for corporate finance, household finance, banking, and the size of the financial sector. I then present a number of facts that are broadly consistent with the theory and examine a variety of alternative explanations of my findings.     

Do Firms Use Time‐Vested Stock‐Based Pay to Keep Research and Development Investments Secret?

I find that executives’ unvested equity holdings are larger when executives are employed by R&D‐intensive firms in industries that rely more on secrecy to profit from R&D. Moreover, I find that this relation is more pronounced for executives with a greater ability to exploit R&D‐related information and also holds for nonexecutive employees. In addition, I find that these firms use option grants with longer vesting periods and that unvested equity holdings reduce the likelihood that their executives leave to find employment elsewhere. Overall, my findings are consistent with firms using time‐vested stock‐based pay to reduce the leakage of R&D‐related information to competitors through employee mobility.     

Political Connections and the Informativeness of Insider Trades

We analyze the trading of corporate insiders at leading financial institutions during the 2007 to 2009 financial crisis. We find strong evidence of a relation between political connections and informed trading during the period in which Troubled Asset Relief Program (TARP) funds were disbursed, and that the relation is most pronounced among corporate insiders with recent direct connections. Notably, we find evidence of abnormal trading by politically connected insiders 30 days in advance of TARP infusions, and that these trades anticipate the market reaction to the infusion. Our results suggest that political connections can facilitate opportunistic behavior by corporate insiders.     

Stimulating Housing Markets

We study temporary fiscal stimulus designed to support distressed housing markets by inducing demand from buyers in the private market. Using difference-in-differences and regression kink research designs, we find that the First-Time Homebuyer Credit increased home sales by 490,000 (9.8%), median home prices by $2,400 (1.1%) per standard deviation increase in program exposure, and the transition rate into homeownership by 53%. The policy response did not reverse immediately. Instead, demand comes from several years in the future: induced buyers were three years younger in 2009 than typical first-time buyers. The program's market-stabilizing benefits likely exceeded its direct stimulus effects.     

WAITING TIME AS A PRICE FOR DECEASED DONOR KIDNEYS*

Kidney transplant candidates can obtain organs immediately from living donors or wait for deceased donor organs. I hypothesize that as waiting time for deceased donor organs increases, more patients will seek living donors. I estimate the impact of the availability of deceased donor organs on the use of living donor transplantation. The model, which is identified using within‐region variation in the demand for and supply of kidneys, shows evidence of a substitution effect. A five unit increase in the supply of deceased donor kidneys will result in one fewer living donor transplant for a net increase of four transplants. (JEL I18, H44, D45)     

CHARTER SCHOOL COMPETITION AND ITS IMPACT ON EMPLOYMENT SPENDING IN MICHIGAN'S PUBLIC SCHOOLS

This paper seeks to determine how competition from charter schools affects a broad range of employees including instructors, administrators, and support personnel. Three empirical models are estimated utilizing a panel data from Michigan: a fixed effect model, a fixed effect model with lagged dependent variable, and an instrumental variable model. The key findings are that when a school district faces competition from charter schools they spend a larger percentage on instructors (most likely most of this is going toward teachers and not teacher aides), while spending a smaller percentage on employees that support instructors. The models seem to imply that the increased spending on teachers may not be reflected in a salary increase. (JEL H52, H75, I21, I22)     

FOOD INSECURITY AND INSUFFICIENCY AT LOW LEVELS OF FOOD EXPENDITURES

In this study we investigate the external validity of the food insecurity and insufficiency measures—specifically, how these measures correlate with food expenditures—using the December 2003 Food Security Supplement of the Current Population Survey. We focus on a special segment of the population—households with low incomes and low food expenditures. If reports of food problems are based on a lack of food, reports should be nearly ubiquitous at the bottom of the expenditure distribution. We find, however, that this is not the case. We define and scale food expenditures several different ways and find that the reported incidence of food insecurity never rises above one‐half anywhere along the corresponding expenditure distributions, leading to concerns about the external validity of the measure.     

CAN SOFT DRINK TAXES REDUCE POPULATION WEIGHT?

Soft drink consumption has been hypothesized as one of the major factors in the growing rates of obesity in the United States. Nearly two-thirds of all states currently tax soft drinks using excise taxes, sales taxes, or special exceptions to food exemptions from sales taxes to reduce consumption of this product, raise revenue, and improve public health. In this paper, we evaluate the impact of changes in state soft drink taxes on body mass index (BMI), obesity, and overweight. Our results suggest that soft drink taxes influence BMI, but that the impact is small in magnitude. ( JEL I18, H75)