* Indicates student co-author
Batta, George, and Fan Yu. “Corporate Credit Derivatives.” Oxford Research Encyclopedia of Economics and Finance, February 24, 2022.
Abstract: Corporate credit derivatives, mainly referring to single-name or index credit default swaps or CDSs, are over-the-counter contracts between two counterparties (the “buyer” and “seller”) that offer protection against the default of a corporate “reference entity” or the defaults in a large credit portfolio for a combination of upfront and periodic payments, loosely referred to as the “CDS premium.” Credit derivatives became popular in the late 1990s and early 2000s as a way for financial institutions to reduce their regulatory capital requirement, and early research treated them as redundant securities whose pricing is tied to the underlying corporate bonds and equities, with liquidity and counterparty risk factors playing supplementary roles. Research in the 2010s and beyond, however, increasingly focused on the effects of market frictions on the pricing of CDSs, how CDS trading has impacted corporate behaviors and outcomes as well as the price efficiency and liquidity of other related markets, and the microstructure of the CDS market itself. This was made possible by the availability of market statistics and more granular trade and quote data as a result of the broad movement of the OTC derivatives market towards central clearing.
Bjerk, David. “Does Greater Police Funding Help Catch More Murderers?” Journal of Empirical Legal Studies, vol. 19, issue 3, 2022, pp. 528-559.
Abstract: his paper examines the impact of police funding on the fraction of homicides that are cleared by arrest. Using data covering homicides in approximately 50 of the largest US cities from 2007 to 2017, I find no evidence that greater police funding resulted in higher homicide clearance rates. This finding is robust to linear regression and instrumental variable approaches, different ways to measure police budgets, and across victims of different races and in different types of neighborhoods. In summary, the way large city police departments have historically spent their funds, more funding has not helped catch more murderers.
Berri, David J., Richard C.K. Burdekin, and Christian Deutscher. “Nationality Effects on the Allocation of Playing Time in the Chinese Basketball Association: Xenophilia or Xenophobia.” Journal of Sports Economics, vol. 23, issue 2, 2022, pp. 156-174.
Abstract: This paper uses 2011–2019 data from the Chinese Basketball Association to assess the determinants of playing time with a focus on the effects of players’ national origin. Playing time is explained by an array of standard performance variables as well as each player's characteristics (such as age, height, and weight). Controlling for these factors, we test for whether there is any evidence of preferential treatment for foreign players over Chinese players. Our findings, using both a fixed effects model and the Oaxaca–Blinder decomposition approach, offer consistent support for discrimination in favor of U.S. players and other foreign nationals. Intriguingly, Chinese coaches discriminate against Chinese players even more than non-Chinese coaches. We argue that foreign players draw attendance and hence receive more playing time than is justified by their performance alone.
Burdekin, Richard C.K. and Pierre L. Siklos. “Armageddon and the Stock Market: US, Canadian, and Mexican Market Responses to the 1962 Cuban Missile Crisis.” The Quarterly Review of Economics and Finance, vol. 84, 2022, pp. 112-127.
Abstract: The threat of nuclear annihilation has never been higher than in 1962, when US President Kennedy and Soviet Premier Khruschev engaged in brinkmanship over the placement of Soviet missiles in Cuba during October 16−28. Although the resolution of the crisis was followed by a sustained recovery in the US, Canadian and Mexican stock markets, the stock market impact of the crisis itself, at first glance, seems relatively limited. Notwithstanding the fact that empirical analysis of 1962 US market data reveal a significant break on October 23, 1962, which is the day after President Kennedy’s television address about the Cuban Missile Crisis, the drop on this day was smaller than prior one day declines seen in the earlier part of the year. When we focus on the 1 % left tail of the distribution of stock returns, that is, just the very largest and least probable negative returns, a different story emerges, however. US uncertainty is now seen to have a significant negative impact on returns across each of the US, Canadian and Mexican markets. Moreover, the size of the negative response to the rise in uncertainty is comparable in all three cases notwithstanding the fact the pre-crisis Mexican stock market trajectory had been very different from that seen in the United States and Canada.
Burdekin, Richard C.K., and Ran Tao. “Chinese Influences on Inflation Determination in Australia and the ASEAN Group: A Markov-Switching Analysis.” Asia and the Global Economy, vol. 2, issue 2, 2022, 100037.
Abstract: China's rapidly growing role in the world economy has been accompanied by rising bilateral trade with Australia and the Association of Southeast Asian Nations (ASEAN group) as well as expanded offshore renminbi (RMB) markets in the region. Using a Markov-switching analysis that allows for variation across stable and volatile domestic inflation regimes, we find evidence of significant inflation transmission from China to Australia and the five larger ASEAN economies. Chinese inflation effects are further confirmed when we incorporate money supply and commodity price effects within a Markov-switching Vector Autoregressive (MSVAR) framework. The importance of allowing for regime change over our sample period is clear and these inflation effects are shown to generally be stronger during periods when domestic inflation is more volatile. These findings on inflation pass-through from China represent a novel extension to a prior literature that has been primarily limited to real economy and trade effects.
Burdekin, Richard C.K., Dawson Reckers, and Ran Tao. “Quantifying China’s financial reach up through the pandemic: The African experience.” The North American Journal of Economics and Finance, vol. 63, 2022, 101833.
Abstract: This study seeks to quantify the financial connections between China and Africa. China’s increasing investments in Africa have inevitably strengthened the relationship between China and the majority of African countries over the past decade. We find consistent effects of the Shanghai Industrial Index on African stock markets together with some evidence that these relationships strengthened following the onset of the coronavirus pandemic. Markov-Switching analysis affirms these connections while also identifying intensifying effects as we move from periods of low market volatility to periods of high volatility. The African stock markets included in the sample encompass Egypt, Kenya, Morocco, Nigeria, South Africa, Tanzania, Uganda, and Zambia.
Ashraf, Rasha, Nishant Dass, and Vikram Nanda. “Industry Centrality: Weak Ties, Industry Attributes, and Managerial Contracting.” Financial Management, vol. 51, issue 2, 2022, pp. 663-699.
Abstract: Centrality in the network of interindustry trade relationships provides novel insights into an industry's economic attributes and managerial incentive contracts prevalent in the industry. More “central” industries trade with a large number of industries, implying numerous but relatively weaker interindustry ties. Weakness of interindustry ties suggests that relationship-specific investment (RSI) will be less important and output will be relatively more commoditized in central industries. As predicted, central industry firms are less innovative, face greater competition, and have lower idiosyncratic risk. Further, CEOs in central industries receive lower pay and weaker incentives. Tournament incentives are also weaker in more central industries.
Evans, Mary F., Laura Grant, Vasu Rai*, and Allison So*. “Enforcement Discretion Policies in the United States during the COVID-19 Public Health Crisis.” Review of Environmental Economics and Policy, vol. 16, no. 2, 2022, pp. 327-337.
Abstract: During the COVID-19 pandemic, the US Environmental Protection Agency and numerous states offered regulated facilities flexibility in adhering to some monitoring and compliance requirements of environmental regulations. These temporary enforcement discretion (TED) policies provide a recent example of how environmental federalism works in practice in the United States. We examine the relationship between state sociodemographic and political characteristics and the timing and similarity of state-level TED policies. To analyze policy similarity, we use natural language processing tools. Thus, this policy brief illustrates how such techniques can be meaningfully applied to answer questions of relevance to environmental policy.
Benhabib, Jess, Alberto Bisin, and Ricardo T. Fernholz. “Heterogeneous Dynasties and Long-Run Mobility.” The Economic Journal, vol. 132, issue 643, 2022, pp. 906-925.
Abstract: Recent empirical work has demonstrated a positive correlation between grandparent-child wealth rank, even after controlling for parent-child wealth rank, and a positive correlation between dynastic wealth ranks across almost six hundred years. We show that a simple heterogeneous agents model with idiosyncratic wealth returns generates a realistic wealth distribution, but fails to capture these long-run patterns of wealth mobility. An auto-correlated returns specification of this model also fails to capture both short- and long-run mobility. However, an extension of the heterogeneous agents model that includes permanent heterogeneity in wealth returns is able to simultaneously match the wealth distribution and short- and long-run wealth mobility.
Fernholz, Ricardo T. and Robert Fernholz. “Permutation-Weighted Portfolios and the Efficiency of Commodity Futures Markets.” Annals of Finance, vol. 18, 2022, pp. 81-108.
Abstract: We study the behavior of permutation-weighted portfolios, portfolios with weights that are proportional to a permutation of the current market weights. For markets with more than two assets, these portfolios are not functionally generated (except for the identity permutation), so we use rank-based methods to analyze their behavior. The reverse-weighted portfolio is the permutation-weighted portfolio with weights proportional to the market weights, but reversed by rank. We show that in a market represented by a first-order model with rank-symmetric variance parameters, the reverse-weighted portfolio will outperform the market portfolio over the long term. This result carries over to a commodity futures market with rank-based parameters similar to those of such a first-order model. In this market we find that the reverse-weighted portfolio outperforms the price-weighted market portfolio from 1977–2018
Finley, Andrew R., Curtis M. Hall, and Amanda R. Marino. “Negotiation and Executive Gender Pay Gaps in Nonprofit Organizations.” Review of Accounting Studies, vol. 27, no. 4, pp. 1357-1388.
Abstract: This study examines gender pay gaps among nonprofit executives and how compensation negotiability influences these disparities. Using tax return data from IRS Form 990 filings, we find that females earn 8.9% lower total compensation than men in our sample. Further, we observe that settings more conducive to negotiation manifest in larger pay disparities, whereas settings that limit executives’ opportunities to negotiate or that encourage females in particular to negotiate produce smaller gender pay gaps. Our nonprofit setting constrains mechanisms, such as labor force participation rates and
risk preferences, that are thought to explain the pay gap, and our results are robust to using a Heckman correction model and matched samples. These findings provide evidence from a large-scale archival dataset of a plausible mechanism for the gender pay gap and point to a potential cost of work environments where negotiations play a larger role in setting compensation.
Finley, Andrew R. and James Stekelberg. “Measuring Tax Authority Monitoring.” Journal of American Taxation Association, vol. 44, issue 1, 2022, pp. 75-92.
Abstract: Despite growing academic interest in tax authority monitoring, the literature remains lacking a summary measure of realized tax authority monitoring that can be constructed from firms’ publicly available financial statement information. The purpose of this study is to develop such a measure. Specifically, we view unrecognized tax benefit (UTB) releases due to settlements with the tax authority to indicate greater tax authority monitoring, and UTB releases due to lapses in the statute of limitations to indicate lesser tax authority monitoring. Among other tests, we validate a new measure of tax authority monitoring utilizing data from UTB releases by documenting its positive associations with predicted determinants of tax authority monitoring and by showing that it varies across time in expected ways. We believe our measure should be useful to future researchers studying tax authority monitoring in a variety of settings
Curtis, Chadwick, Julio Garín, and Robert Lester. “Working, Consuming, and Dying: Quantifying the Diversity in the American Experience.” Journal of Economic Dynamics and Control, vol. 138, 2022, 104357.
Abstract: We document how lifetime utility varies by demographic groups in the US and how these differences have evolved since the start of the 21st century. Using the equivalent variation as our measure of welfare we find that the standard deviation in cross-sectional well-being between demographic groups is comparable to the standard deviation of relative annual income in prime earning years and double the standard deviation of relative consumption. Our metric includes consumption, leisure, and mortality risk. The results are primarily driven by differences in consumption and life expectancy. Controlling for other demographics, welfare is increasing in educational attainment and is higher for women and those of Asian descent. This qualitative ordering is robust to classifying a broad measure of home production and child care as work and various definitions of real consumption. Finally, we show that changes in mortality rates associated with ‘deaths of despair’ disproportionately lower the welfare of less educated Whites.
Gelman, Michael. “The Self-Constrained Hand-to-Mouth.” The Review of Economics and Statistics, vol. 104, issue 5, 2022, pp. 1096-1109.
Abstract: Many studies have shown that consumption responds to the arrival of predictable income (excess sensitivity). This paper uses a buffer stock model of consumption to understand what causes excess sensitivity and to test which parameterization is consistent with empirical excess sensitivity estimates. Using high-frequency granular data from a personal finance app, I find that while liquidity constraints are a proximate cause, preferences are the ultimate cause of excess sensitivity. Furthermore, it finds that for feasible parameters, a quasi-hyperbolic version of the model is more consistent with the level of excess sensitivity relative to a standard exponential model.
Gelman, Michael, Shachar Kariv, Matthew D. Shapiro, and Dan Silverman. “Rational Illiquidity and Consumption: Theory and Evidence from Income Tax Withholding and Refunds.” American Economic Review, vol. 112, no. 9, 2022, pp. 2959-2991.
Abstract: Low liquidity and a high marginal propensity to consume are tightly linked. This paper analyzes this link in the context of income tax withholding and refunds. A theory of rational cash management with income uncertainty endogenizes the relationship between illiquidity and the marginal propensity to consume, and can explain the finding that households tend to spend tax refunds as if they valued liquidity, yet do not act to increase liquidity by reducing their withholding. The theory is supported by individual-level evidence based on financial account records, including a positive correlation between the size of tax refunds and the marginal propensity to consume out of those refunds.
Gelman, Michael and Melvin Stephens, Jr. “Lessons Learned from Economic Impact Payments During COVID-19.” Recession Remedies: Lessons Learned from the U.S. Economic Policy Response to COVID-19, edited by Wendy Edelberg, Louise Sheiner, and David Wessel. Washington, D.C. Brookings Institution, 2022, pp. 91-122.
Abstract: The authors examine the more than $800 billion in cash that was distributed to all but the highest-income households in the three rounds of Economic Impact Payments (EIPs). Although there were delays in getting the money to some vulnerable, low-income households, electronic disbursement allowed the Treasury to make payments quickly—about two weeks after the initial legislation was signed and even more quickly in the subsequent rounds. The available evidence suggests that the payments led to a rapid increase in spending; consumers spent about the same or a smaller fraction of these payments relative to similar payments in past downturns. The payments were not, of course, well targeted. Some households that weren’t adversely affected by the pandemic received the money, but other recipients were adversely affected but weren’t eligible for or didn’t promptly receive more targeted benefits (such as UI or rental assistance) and were greatly aided by the EIPs.
Evans, Mary F., Laura Grant, Vasu Rai*, and Allison So*. “Enforcement Discretion Policies in the United States during the COVID-19 Public Health Crisis.” Review of Environmental Economics and Policy, vol. 16, no. 2, 2022, pp. 327-337.
Abstract: During the COVID-19 pandemic, the US Environmental Protection Agency and numerous states offered regulated facilities flexibility in adhering to some monitoring and compliance requirements of environmental regulations. These temporary enforcement discretion (TED) policies provide a recent example of how environmental federalism works in practice in the United States. We examine the relationship between state sociodemographic and political characteristics and the timing and similarity of state-level TED policies. To analyze policy similarity, we use natural language processing tools. Thus, this policy brief illustrates how such techniques can be meaningfully applied to answer questions of relevance to environmental policy.
External grant: Helland, Eric. “Debt Collection Cases in Los Angeles County Courts.” 2022 Faculty Fellowship Award, Haynes Foundation, 2022-2023, $16,000.
Hu, Jinghuan and Manfred W. Keil. “The Inland Empire Strikes Back with Employment and Labor Force, or Does It?” The San Bernardino Sun, September 30, 2022.
Hu, Jinghuan, and Manfred W. Keil. “Riverside County vs. San Bernardino County: A Look at Employment and the Labor Force.” The San Bernardino Sun, November 25, 2022.
Hu, Jinghuan and Manfred W. Keil. “Running Up that (Price) Hill with 8.5% Inflation.” The San Bernardino Sun, August 17, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “Drawing a Roadmap for the Inland empire in 2042.” The San Bernardino Sun, March 10, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “Inland Empire is an Employment Powerhouse for Southern California.” The San Bernardino Sun, October 28, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “Is There an Increased Probability of Recession in the Next 12 Months?” The San Bernardino Sun, September 30, 2022.
Keil, Manfred W and Robert A. Kleinhenz. “Job Gains Continue in Inland Empire and Nation Despite Recession Worries.” The San Bernardino Sun, May 12, 2022.
Keil, Manfred W and Robert A. Kleinhenz. “A Look at the Inland Empire’s Economic Recovery in 2021 and Outlook for 2022.” The San Bernardino Sun, February 8, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “Macroeconomic Developments Have Limited Effects on Inland Empire.” The San Bernardino Sun, June 23, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “Planning for the Inland Empire in 2042.” The San Bernardino Sun, February 23, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “There’s No Way We’re Heading for a Double-Dip Recession.” The San Bernardino Sun, June 23, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “What Job Sectors Are Recent Winners and Losers in the Inland Empire?” The San Bernardino Sun, July 22, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “What’s In Store for the Economy in 2022? Let’s Look at the Vital Signs.” The San Bernardino Sun, January 11, 2022.
Keil, Manfred W. and Robert A. Kleinhenz. “Worries about the Economy Continue to Pile Up.” The San Bernardino Sun, July 7, 2022.
Keil, Manfred W., Robert A. Kleinhenz, and Muxi Li*. “National Recession vs. Inland Empire Recession, Where Do We Stand?” The San Bernardino Sun, August 3, 2022.
Keil, Manfred W., Robert Kleinhenz, and Fernando Lozano. “Riverside & San Bernardino Counties.” 13th Annual Southern California Economic Summit: Regional Briefing Book, 2022, pp. 79-90.
Keil, Manfred W. and Yao Li*. “Is the Economy Heading for a Double-Dip Recession?” The San Bernardino Sun, May 26, 2022.
Keil, Manfred W. and Sasha Rothstein*. “22 Things to Be Thankful for in 2022.” The San Bernardino Sun, December 22, 2022.
Keil, Manfred W. and Mark Schniepp. “California’s Employment Level: Where Have All the Workers Gone?” The San Bernardino Sun, August 30, 2022.
Jackson, Paul and Florian Madison. “Entrepreneurial Finance and Monetary Policy.” European Economic Review, vol. 141, 2022, 103961.
Abstract: We model entrepreneurial finance in a search-theoretic framework with endogenous firm entry and exit. Entrepreneurs fund risky investments using a combination of savings, credit cards, bank loans, and home equity loans. The banking sector is over-the-counter, where bargaining determines the pass-through from the nominal interest rate to the bank lending rate, relating the transmission channel of monetary policy to output risk, financial frictions, and the housing market. Firm entry and exit generate heterogeneity in two dimensions: firm age and firm size. At a given nominal interest rate, new (mature) entrepreneurs finance a smaller (larger) share of investments internally and are more (less) liquidity constrained. A calibration to the U.S. between 2000–2016 complements the theoretical results and identifies the entry margin as a key driver in the transmission of monetary policy to aggregate output.
Hansen, Benjamin, Joseph J. Sabia, and Jessamyn Schaller. “Schools, Job Flexibility, and Married Women’s Labor Supply: Evidence from the COVID-19 Pandemic.” National Bureau of Economic Research, 2022, 29660.
Abstract: This study explores the effect of school reopenings during the COVID-19 pandemic on married women's labor supply. We proxy for in-person attendance at US K-12 schools using smartphone data from Safegraph and measure female employment, hours, and remote work using the Current Population Survey. Difference-in-differences estimates show that K-12 reopenings are associated with significant increases in employment and hours among married women with school-aged children, with no measurable effects on labor supply in comparison groups. Employment effects of school reopenings are concentrated among mothers of older school-aged children, while remote work may mitigate effects for mothers of younger children.
Sabouni, Hisam and Cameron Shelton. “Gerrymandering in State Legislatures: Frictions from Axiomatic Bargaining.” American Economic Journal: Economic Policy, vol. 14, no. 4, 2022, pp. 519-542.
Abstract: Theories of partisan redistricting postulate unitary actors maximizing their party's expected seat share. Yet, the partition of a fixed supply of friendly voters necessarily implies a tragedy of the commons. We recast partisan redistricting as a bargaining game among the sitting representatives of the party controlling the map. The status quo is the threat point, explaining why changes are frequently minor. This bargaining framework implies that highly competitive districts will receive more help from redistricting if they are already represented by the party in charge. Employing a regression discontinuity design with precinct-level data, we find support for this prediction.
Shelton, Cameron A. “Age Demographics and the Tax Mix in US States.” Public Finance Review, vol. 50, issue 1, 2022, pp. 120-130.
Abstract: Countries with higher old-age dependency rates tend to rely less heavily on income taxes and more heavily on consumption taxes. We investigate this relationship in a panel of US states. To address endogeneity in a sub-national context due to migration, we use lagged in-state births to develop a new instrument for old-age dependency which is shown to be strong and relevant to the results. In an unbalanced panel spanning 1979–2013, we do find a negative relationship between old-age dependency ratio and income tax reliance. But, though persistent across specifications, it is not statistically significant under either ordinary least squares or instrumental variables despite strong instruments and a healthy sample size. We speculate as to what underlying mechanism might deliver a correlation that is robust among the Organization for Economic Cooperation and Development countries but tepid among US states.
Das, Sanjiv R., Mitchener, Kris James, and Angela Vossmeyer. “Bank Regulation, Network Topology, and Systemic Risk: Evidence from the Great Depression.” Journal of Money, Credit, and Banking, vol. 54, issue 5, 2022, pp. 1261-1312.
Abstract: We study how bank regulation interacts with network topology to influence systemic stability. Employing unique hand-collected data on the correspondent network for all U.S. banks prior to the Great Depression and a methodology that captures bank credit risk and network position, we demonstrate how the pyramid-shaped network topology was inherently fragile and systemically risky. We measure its contribution to banking distress, and show that a bank's network position as well as its network neighbors' risk are strong predictors of bank survivorship. Institutional alternatives, such as branch banking, and alternative topologies deliver networks that are more stable than that of 1929.
Batta, George, and Fan Yu. “Corporate Credit Derivatives.” Oxford Research Encyclopedia of Economics and Finance, February 24, 2022.
Abstract: Corporate credit derivatives, mainly referring to single-name or index credit default swaps or CDSs, are over-the-counter contracts between two counterparties (the “buyer” and “seller”) that offer protection against the default of a corporate “reference entity” or the defaults in a large credit portfolio for a combination of upfront and periodic payments, loosely referred to as the “CDS premium.” Credit derivatives became popular in the late 1990s and early 2000s as a way for financial institutions to reduce their regulatory capital requirement, and early research treated them as redundant securities whose pricing is tied to the underlying corporate bonds and equities, with liquidity and counterparty risk factors playing supplementary roles. Research in the 2010s and beyond, however, increasingly focused on the effects of market frictions on the pricing of CDSs, how CDS trading has impacted corporate behaviors and outcomes as well as the price efficiency and liquidity of other related markets, and the microstructure of the CDS market itself. This was made possible by the availability of market statistics and more granular trade and quote data as a result of the broad movement of the OTC derivatives market towards central clearing.
Ye, Xiaoxia, Fan Yu, and Ran Zhao. “Credit Derivatives and Corporate Default Prediction.” Journal of Banking & Finance, vol. 138, 2022, 106418.
Abstract: There have been 128 defaults among U.S. CDS reference entities between 2001 and 2020. Within this sample, the five-year CDS spread is a significant predictor of corporate default in models with equity market covariates and firm attributes. This finding holds for forecast horizons up to 12 months, among financial and non-financial firms, within and without the great financial crisis, and is robust to the inclusion of corporate bond and equity options market information. A decomposition of the CDS spread into liquidity, physical default, and risk premium components shows that most of its predictive power for corporate default comes from the physical default component, both in- and out-of-sample. These results confirm the relevance of information contained in single-name CDS pricing to corporate default prediction.