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.     

Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France

We evaluate the effect of downside insurance on self-employment. We exploit a large-scale reform of French unemployment benefits that insured unemployed workers starting businesses. The reform significantly increased firm creation without decreasing the quality of new entrants. Firms started postreform were initially smaller, but their employment growth, productivity, and survival rates are similar to those prereform. New entrepreneurs' characteristics and expectations are also similar. Finally, jobs created by new entrants crowd out employment in incumbent firms almost one-for-one, but have a higher productivity than incumbents. These results highlight the benefits of encouraging experimentation by lowering barriers to entry.     

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.     

How Crashes Develop: Intradaily Volatility and Crash Evolution

This paper explores whether affine models with volatility jumps estimated on intradaily S&P 500 futures data over 1983 to 2008 can capture major daily outliers such as the 1987 stock market crash. Intradaily jumps in futures prices are typically small; self‐exciting but short‐lived volatility spikes capture intradaily and daily returns better. Multifactor models of the evolution of diffusive variance and jump intensities improve fits substantially, including out‐of‐sample over 2009 to 2016. The models capture reasonably well the conditional distributions of daily returns and realized variance outliers, but underpredict realized variance inliers. I also examine option pricing implications.     

Sticky Expectations and the Profitability Anomaly

We propose a theory of the “profitability” anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional model predictions: (1) analysts are on average too pessimistic regarding the future profits of high‐profit firms, (2) the profitability anomaly is stronger for stocks that are followed by stickier analysts, and (3) the profitability anomaly is stronger for stocks with more persistent profits.     

The Dividend Disconnect

Many individual investors, mutual funds, and institutions trade as if dividends and capital gains are disconnected attributes, not fully appreciating that dividends result in price decreases. Behavioral trading patterns (e.g., the disposition effect) are driven by price changes instead of total returns. Investors rarely reinvest dividends, and trade as if dividends are a separate, stable income stream. Analysts fail to account for the effect of dividends on price, leading to optimistic price forecasts for dividend‐paying stocks. Demand for dividends is systematically higher in periods of low interest rates and poor market performance, leading to lower returns for dividend‐paying stocks.     

Work is a Four‐Letter Word: The Economics of Work in Historical and Critical Perspective*

The article highlights and explains the neglect of the activity of work in much of the mainstream economics literature. The neglect of work is seen to have denied space for mainstream economists to engage with the full range of possibilities for progress in human well‐being. The article also considers perspectives on work from within heterodox or non‐mainstream economics and argues that these perspectives provide a superior foundation for the theorization of work.     

Explaining House Price Dynamics: Isolating the Role of Nonfundamentals

This paper examines the role of nonfundamentals‐based sentiment in house price dynamics, including the well‐documented volatility and persistence of house prices during booms and busts. To measure and isolate sentiment's effect, we employ survey‐based indicators that proxy for the sentiment of three major agents in housing markets: home buyers (demand side), home builders (supply side), and lenders (credit suppliers). After orthogonalizing each sentiment measure against a broad set of fundamental variables, we find strong and consistent evidence that the changing sentiment of all three sets of market participants predicts house price appreciation in subsequent quarters, above and beyond the impact of changes in lagged price changes, fundamentals, and market liquidity. More specifically, a one‐standard‐deviation shock to market sentiment is associated with a 32–57 basis point increase in real house price appreciation over the next two quarters. These price effects are large relative to the average real price appreciation of 71 basis points per quarter observed over the full sample period. Moreover, housing market sentiment and its effect on real house prices is highly persistent. The results also reveal that the dynamic relation between sentiment and house prices can create feedback effects that contribute to the persistence typically observed in house price movements during boom and bust cycles.     

Immigration of Nurses

This paper examines the effects of immigration on a specific occupation, registered nurses (RNs). To learn whether immigrant nurses reduced the earnings of RNs, we applied techniques developed by Goldin (1994) and Borjas, Freeman, and Katz (1996), but found the effect of immigrant penetration either positive or insignificant. We also found that the supply of immigrant RNs was far more elastic than the supply coming from natives. It is often argued that it will be hard to detect negative effects on wages and employment of natives in local markets, because natives will avoid a market which many immigrants have entered. This study finds no support for this hypothesis in this market, based on data that measures the rate of entry of RNs exactly. We find no adverse effect of immigration on native workers in this occupation.     

CONTRACTING FOR AN INNOVATION UNDER BILATERAL ASYMMETRIC INFORMATION*

We analyze licensing contracts between informed innovators and developers exerting profit‐increasing effort. Those contracts must simultaneously induce innovators to convey information on the value of their ideas, while inducing developers to exert effort and protecting the innovators' intellectual property rights. We show that the best innovators signal themselves by taking more royalties even if it reduces the developers' share of returns and their incentives. Moreover, royalties are more likely to be used when property rights are easy to enforce and pre‐contractual evidence on innovation quality is hard to produce.