Working Papers:
Housing Yields
(with Stefano Colonnello and Roberto Marfè)
This paper investigates heterogeneity in residential property yields using rental and sale listings from the largest German internet real estate platform. Equipped with property-level rent-to-price ratios obtained via matching properties for sale and for rent, we show that they strongly co-move with local factors, such as population age structure, industry structure, housing supply rigidities, and the liquidity and size of the housing market. Regional differences are particularly pronounced between globally relevant cities and other areas. However, a large fraction of the variation of rent-to-price ratios can be explained neither by local factors nor by an extensive array of property-specific observable features, pointing to the crucial role of idiosyncratic factors and within-city aggregation economies. We then create a pseudo-panel to examine the time-series dimension of house prices and show that the ability of expectations about discount and rent growth rates impounded in rent-to-price ratios to predict return and rent growth is statistically significant but of limited economic magnitude.
(with Stefano Colonnello and Roberto Marfè)
This paper investigates heterogeneity in residential property yields using rental and sale listings from the largest German internet real estate platform. Equipped with property-level rent-to-price ratios obtained via matching properties for sale and for rent, we show that they strongly co-move with local factors, such as population age structure, industry structure, housing supply rigidities, and the liquidity and size of the housing market. Regional differences are particularly pronounced between globally relevant cities and other areas. However, a large fraction of the variation of rent-to-price ratios can be explained neither by local factors nor by an extensive array of property-specific observable features, pointing to the crucial role of idiosyncratic factors and within-city aggregation economies. We then create a pseudo-panel to examine the time-series dimension of house prices and show that the ability of expectations about discount and rent growth rates impounded in rent-to-price ratios to predict return and rent growth is statistically significant but of limited economic magnitude.
Drivers and real effects of energy efficiency premium in residential real estate: evidence from the UK
(with Stefano Colonnello and Loriana Pelizzon)
This paper investigates the determinants and real effects of the energy efficiency premium in the residential real estate market using extensive transaction and energy performance certificate (EPC) data in England and Wales. The data shows that, since the implementation of the EPC policy, there is a significant energy efficiency premium, which also exhibits significant time and regional variation. Moreover, we investigate the determinants of the energy efficiency premium to test two main hypotheses: 1) capitalisation of energy cost savings in the future and 2) environmentally responsible households' voluntary willingness to pay. The empirical analysis shows weak support for the capitalisation theory but offers strong evidence for the voluntary premium story. Finally, we find a significant yet economically moderate real effect of energy efficiency premium by looking into the lagged EPC of retrofit and new builds.
(with Stefano Colonnello and Loriana Pelizzon)
This paper investigates the determinants and real effects of the energy efficiency premium in the residential real estate market using extensive transaction and energy performance certificate (EPC) data in England and Wales. The data shows that, since the implementation of the EPC policy, there is a significant energy efficiency premium, which also exhibits significant time and regional variation. Moreover, we investigate the determinants of the energy efficiency premium to test two main hypotheses: 1) capitalisation of energy cost savings in the future and 2) environmentally responsible households' voluntary willingness to pay. The empirical analysis shows weak support for the capitalisation theory but offers strong evidence for the voluntary premium story. Finally, we find a significant yet economically moderate real effect of energy efficiency premium by looking into the lagged EPC of retrofit and new builds.
Endogenous Stock Market Participation: Risk Preference and Participation Cost
(previously available as IWH Discussion Papers, No. 11, 2015)
This paper revisits the limited stock market participation puzzle and treats non-participation as an endogenous self-censoring. I employ a censored fractional response model to estimate both participation costs and risk preferences in a reduced form framework using European survey data. I show that all households face non-negligible participation costs, and the non-participants have significantly higher risk aversion than the participants. The new estimation corrects the sample selection bias in estimating risk preference with only participants and suggests an average relative risk aversion around 8.3 and an average participation cost of approximately EUR 80 for European households.
(previously available as IWH Discussion Papers, No. 11, 2015)
This paper revisits the limited stock market participation puzzle and treats non-participation as an endogenous self-censoring. I employ a censored fractional response model to estimate both participation costs and risk preferences in a reduced form framework using European survey data. I show that all households face non-negligible participation costs, and the non-participants have significantly higher risk aversion than the participants. The new estimation corrects the sample selection bias in estimating risk preference with only participants and suggests an average relative risk aversion around 8.3 and an average participation cost of approximately EUR 80 for European households.
Credit Surface of Mortgage Loans: Lenders' Belief of Housing Markets
Action speaks louder than words. This paper uses the details of the abundant mortgage contracts that have been reported in the last two decades to unveil the true belief of the lenders revealed by their mortgage origination. Further, we compare to their ex ante belief at the mortgage origination with the ex post realization of the housing markets to see whether the lenders are doing a good job in forming realistic expectation about the housing market.
Action speaks louder than words. This paper uses the details of the abundant mortgage contracts that have been reported in the last two decades to unveil the true belief of the lenders revealed by their mortgage origination. Further, we compare to their ex ante belief at the mortgage origination with the ex post realization of the housing markets to see whether the lenders are doing a good job in forming realistic expectation about the housing market.
Housing Consumption and Macroprudential Policies in Europe: An Ex Ante Evaluation
(with Antonios Mavropolous; available as IWH Discussion Papers, No. 17, 2018)
In this paper, we use the panel of the first two waves of the Household Finance and Consumption Survey by the European Central Bank to study housing demand of European households and evaluate potential housing market regulations in the post-crisis era. We provide a comprehensive account of the housing decisions of European households between 2010 and 2014, and structurally estimate the housing preference of a simple life-cycle housing choice model. We then evaluate the effect of a tighter LTV/LTI regulation via counter-factual simulations. We find that those regulations limit homeownership and wealth accumulation, reduces housing consumption but may be welfare improving for the young households.
(with Antonios Mavropolous; available as IWH Discussion Papers, No. 17, 2018)
In this paper, we use the panel of the first two waves of the Household Finance and Consumption Survey by the European Central Bank to study housing demand of European households and evaluate potential housing market regulations in the post-crisis era. We provide a comprehensive account of the housing decisions of European households between 2010 and 2014, and structurally estimate the housing preference of a simple life-cycle housing choice model. We then evaluate the effect of a tighter LTV/LTI regulation via counter-factual simulations. We find that those regulations limit homeownership and wealth accumulation, reduces housing consumption but may be welfare improving for the young households.
The Liquidity Premium of Safe Assets: The Role of Government Debt Supply
(previously available as IWH Discussion Papers, No. 11, 2017)
This paper studies the impact of government debt supply on the liquidity premium, as measured by the yield spread between public and private safe assets. I test, at a quarterly frequency, how the liquidity premium of Treasury bills against i) Aaa-rated corporate bonds and ii) commercial paper responds to government debt supply changes. The response is significant in each case – even after controlling for the opportunity cost of money – but heterogeneous: negative for Aaa-rated corporate bonds and positive for commercial paper. This points to different degrees of substitutability with government debt across apparently similar private safe assets.
(previously available as IWH Discussion Papers, No. 11, 2017)
This paper studies the impact of government debt supply on the liquidity premium, as measured by the yield spread between public and private safe assets. I test, at a quarterly frequency, how the liquidity premium of Treasury bills against i) Aaa-rated corporate bonds and ii) commercial paper responds to government debt supply changes. The response is significant in each case – even after controlling for the opportunity cost of money – but heterogeneous: negative for Aaa-rated corporate bonds and positive for commercial paper. This points to different degrees of substitutability with government debt across apparently similar private safe assets.
Publications:
College Choice Allocation Mechanisms: Structural Estimates and Counterfactuals
(with Thierry Magnac and Jose-Raimundo Carvalho, published in Quantitative Economics Volume 10: Issue 3 (2019); pp. 1233-1277)
We evaluate a simple allocation mechanism of students to majors at college entry that was commonly used in universities in Brazil in the 1990s and 2000s. Students first chose a single major and then took exams that select them in or out of the chosen major. The literature analyzing student placement, points out that this decentralized mechanism is not stable and is not strategy-proof. This means that some pairs of major & students can be made better off and that students tend to disguise their preferences using such a mechanism. We build up a model of performance and school choices in which expectations are carefully specified and we estimate it using cross-section data reporting choices between two medical schools and grade performances at the entry exams. Given those estimates, we evaluate changes in selection and students' expected utilities when other mechanisms are implemented. Results highlight the importance of strategic motives and re-distributive effects of changes of the allocation mechanisms.
(with Thierry Magnac and Jose-Raimundo Carvalho, published in Quantitative Economics Volume 10: Issue 3 (2019); pp. 1233-1277)
We evaluate a simple allocation mechanism of students to majors at college entry that was commonly used in universities in Brazil in the 1990s and 2000s. Students first chose a single major and then took exams that select them in or out of the chosen major. The literature analyzing student placement, points out that this decentralized mechanism is not stable and is not strategy-proof. This means that some pairs of major & students can be made better off and that students tend to disguise their preferences using such a mechanism. We build up a model of performance and school choices in which expectations are carefully specified and we estimate it using cross-section data reporting choices between two medical schools and grade performances at the entry exams. Given those estimates, we evaluate changes in selection and students' expected utilities when other mechanisms are implemented. Results highlight the importance of strategic motives and re-distributive effects of changes of the allocation mechanisms.
Research in Progress:
Evaluating the institutional investors' engagement with housing market: consequences and regulations
There has been increasing activities of instituational investors participating the housing market via creation of substantial residential real estate portfolio. This seems to raise the concern of a higher housing price, a depreviation of housing supply for the households and a more volatile housing market. This project aims to look into the details of institutional investors' engagement with the housing market and figure out the theoretical consequences and empirical test the hypothesis. Finally, we would like to provide robust regulation advices that would make the institutional investment in the housing market socially beneficial.
There has been increasing activities of instituational investors participating the housing market via creation of substantial residential real estate portfolio. This seems to raise the concern of a higher housing price, a depreviation of housing supply for the households and a more volatile housing market. This project aims to look into the details of institutional investors' engagement with the housing market and figure out the theoretical consequences and empirical test the hypothesis. Finally, we would like to provide robust regulation advices that would make the institutional investment in the housing market socially beneficial.
The Effect of Wealth Fluctuation on Asset Holding: Micro-Evidence from Dutch Household Survey
(under major revision, available upon request)
This paper uses the DNB Household Survey from Netherlands to investigate household portfolio adjustment in response to financial wealth fluctuation. I study both the intensive and extensive margin of the portfolio adjustment. I use the habit formation model to test whether household risky share adjusts when liquid financial wealth changes. The results show that changes in household risky asset holding has negative correlation with the changes in financial wealth, which rejects the decreasing relative risk aversion prediction of habit formation model. Meanwhile increasing relative risk aversion is also rejected when the sampling periods extend to 20 years. Constant relative risk aversion seems to best describe the risk preference of Dutch households.
(under major revision, available upon request)
This paper uses the DNB Household Survey from Netherlands to investigate household portfolio adjustment in response to financial wealth fluctuation. I study both the intensive and extensive margin of the portfolio adjustment. I use the habit formation model to test whether household risky share adjusts when liquid financial wealth changes. The results show that changes in household risky asset holding has negative correlation with the changes in financial wealth, which rejects the decreasing relative risk aversion prediction of habit formation model. Meanwhile increasing relative risk aversion is also rejected when the sampling periods extend to 20 years. Constant relative risk aversion seems to best describe the risk preference of Dutch households.
