Bank Competition with Financing and Savings Substitutes

This paper models the banking competition in loan and deposit markets on two levels. We measure the competition among different banks and among banks and non-bank financing and saving alternatives. We estimate a model of demand, cost, and market equilibrium equations for differentiated products by using data from the confidential reports that Spanish banks provide to the Bank of Spain during the period from 1988 to 2003. This database contains information on the effective interest rates on new loans and deposits, and the expected loan losses obtained from the Spanish Credit Register. The estimated price elasticities show that the products offered by different banks are close substitutes, which puts pressure on the banks’ profits margins. However, the substitutability between bank and non-bank products is much lower than the substitutability among products offered by different banks. The results also show that Spain’s entrance into the Eurozone did not cause a structural change in the demand and cost conditions of Spanish banks. The banks financed most of the imbalances between bank loans and domestic deposits before the crisis through the interbank market.     

Short-Sale Restrictions and Price Clustering: Evidence from SEC Rule 201

We provide a novel test of information-based theories of price clustering by examining trade, order, and the National Best Bid and Offer (NBBO) quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering. We find evidence of increased price clustering for trades, orders, and NBBO prices during short-sale restrictions. Overall, our findings indicate that short-sale restrictions harm the price discovery process and lead to a reduction in market efficiency.     

The 2015 Maastricht-NUS-MIT International Real Estate Finance &; Economics Symposium: Editors’ Introduction to the Special Issue

We use an empirical model of commercial mortgage spreads to examine how tenant diversification impacts credit spreads for mortgages on retail properties. We find that mortgages on properties with a highly diversified tenant base have spreads that are up to 7.1 basis points higher than spreads on mortgages for single-tenant properties, but that mortgages on properties with moderate levels of tenant diversification have spreads that are up to 5.2 basis points lower than mortgages on single-tenant properties. The spread discount for mortgages on properties with moderate levels of tenant diversification disappears when the lease of the property’s largest tenant expires before the loan matures. Despite the spread discount that is given to properties with moderate levels of tenant diversification, we find that the likelihood with which a mortgage goes into default increases as tenant diversification increases.     

What Causes the Positive Price-Turnover Correlation in European Housing Markets?

This paper examines what determines the correlation between prices and turnover in European housing markets. Using a panel vector autoregressive model, we find that there is a particularly strong feedback mechanism between prices and turnover. Momentum effects are another important reason why prices and turnover are correlated. Common underlying factors, such as GDP and interest rates, also explain part of the price-turnover correlation. The results in this paper imply that, to understand price and turnover dynamics, it is important to model prices and turnover as two interdependent processes. There is a considerable bias in the coefficient estimates of standard house price models if this dependency is not explicitly taken into account.     

Urban Economic Openness and IPO Underpricing

This paper represents a first attempt to employ a macroeconomic approach to explain the high and varying IPO underpricing within a single emerging market. We examine the empirical impact of trade openness on the short-run underpricing of initial public offerings (IPOs) using city-level data. Particularly, we argue that urban economic openness (UEO) has a significant impact on the productivity and on prices of both direct and indirect real estate due to productivity gains of companies in more open areas. This in turn positively affects the firm’s profitability, enhancing the confidence in local real estate markets and future company performance, hence decreasing the uncertainty of the IPO valuation. As a result, issuers have less incentive to underprice IPO shares. We use a sample of Chinese real estate IPOs, which offer a suitable laboratory thanks to their strong geographic investment patterns focused locally and a country with a highly heterogeneous openness across regions. Controlling for traditional firm- and issuing-specific characteristics of IPOs that are used for developed markets and Chinese-related features (i.e. listing location and state ownership), we find the evidence that companies investing in economically more open areas experience less IPO underpricing. Our results show great explanatory power and are robust to different specifications.     

The ECB’s fiscal policy

While the ECB helped mitigate the euro crisis in the aftermath of Lehman, it has stretched its monetary mandate and moved into fiscal territory. This text describes and summarizes the crucial role played by the ECB in the intervention spiral resulting from its bid to manage the crisis. It also outlines ongoing competitiveness problems in southern Europe, discusses the so-called austerity policy of the Troika, comments on QE and presents two alternative paths for the future development of Europe.     

Taxation and parental time allocation under different assumptions on altruism

This paper examines the effects of labor income taxation on parental time allocation in an OLG model in which child care arrangements, that is the combination of parental and non-parental time, matter for human capital accumulation. We show that the sign of the impact of labor income taxation on parental time with children and on growth critically depends on the assumption on the altruistic motives behind the choice of devoting time to children.     

Dividend taxes and stock volatility

How do dividend taxes affect stock volatility? If a risk-averse executive faces price risk through his incentive contract, changes in stock volatility due to dividend taxes may increase agency costs and therefore decrease overall welfare. In this paper, I use a decrease in dividend taxes as a natural experiment to identify their effect on the firm’s idiosyncratic stock return volatility. Stock volatility decreased after the tax cut for firms at which executives have larger sensitivity to stock price in their incentive compensation package relative to firms at which executives have a smaller sensitivity. Therefore, with risk-averse executives and risk-neutral shareholders, dividend taxes may exacerbate agency costs. The increase in agency costs will decrease shareholder welfare, which can be partially offset by the use of options in the employment contract.     

Tax penalties on fluctuating incomes: estimates from longitudinal data

Progressive personal income taxes can cause individuals with fluctuating incomes to pay more taxes over time than individuals with constant incomes of the same average value. The implicit tax penalty violates principles of equity and may harm efficiency by discouraging risk-taking activities, such as entrepreneurship. This paper uses longitudinal data to estimate the tax penalties in six panels of Canadian data from 1993 to 2010. The effects of various income averaging policies for mitigating tax penalties are then examined.