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Columbia Business School Research

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At the Forefront of Their Fields
The Columbia Advantage

At Columbia Business School, our faculty members are at the forefront of research in their respective fields, offering innovative ideas that directly impact business practice today. A glance at our publication on faculty research, CBS Insights, will give you a sense of the breadth and immediacy of the insight our professors provide.

Columbia Business School in conjunction with the Office of the Dean provides its faculty, PhD students, and other research staff with resources and cutting edge tools and technology to help push the boundaries of business research.

Specifically, our goal is to seamlessly help faculty set up and execute their research programs. This includes, but is not limited to:

  • Highly skilled staff of full-time predoctoral fellows, summer research interns, and part-time research assistants
  • Access to centralized funding from the Dean's office and external grants to support research activities
  • Providing a state-of-the-art high-performance grid computing environment
  • Acquisition of proprietary data sets and access to various databases
  • Leading library which provides faculty with latest tools and techniques to enable digital scholarship

All these activities help to facilitate and streamline faculty research, and that of the doctoral students working with them.

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Type
Journal Article
Date
2025

Understanding Rationality and Disagreement in House Price Expectations

Author
Li, Zigang, Stijn Van Nieuwerburgh , and Wang Renxuan

Professional house price forecast data are consistent with a rational model where agents must learn about the parameters of the house price growth process and the underlying state of the housing market. Slow learning about the long-run mean generates overreaction to forecast revisions and a modest response of forecasts to lagged realizations. Heterogeneity in signals and priors about the long-run mean helps the model account for cross-sectional dispersion in forecasts. Introducing behavioral biases helps improve the model's predictions for short-horizon overreaction and dispersion.

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Type
Journal Article
Date
2024

Serving with a Smile on Airbnb: Analyzing the Economic Returns and Behavioral Underpinnings of the Host’s Smile

Author
Zhang, Shunyuan, Elizabeth Friedman , Kannan Srinivasan, Ravi Dhar, and Xupin Zhang

Non-informational cues, such as facial expressions, can significantly influence judgments and interpersonal impressions. While past research has explored how smiling affects business outcomes in offline or in-store contexts, relatively less is known about how smiling influences consumer choice in e-commerce settings even when there is no face-to-face interaction.

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Type
Journal Article
Date
2023

Right-of-Use Assets and the Prediction of Revenue

Author
Nissim, Doron

ASC 842, which requires balance sheet recognition of right-of-use (ROU) lease assets, resulted in a large increase in reported assets since 2019, thus impairing the time-series consistency of metrics that use assets (e.g., asset turnover). This paper shows that ROU assets can be estimated quite precisely using lease disclosure. Adding the estimated ROU asset for pre-ASC 842 observations substantially improves the ability of operating assets to explain sales. It also increases the ability of growth in operating assets to predict sales growth and explain analysts’ revenue growth forecasts.

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Type
Journal Article
Date
2022

Flattening the Curve: Pandemic-Induced Revaluation of Real Estate

Author
Gupta, A., V. Mittal, J. Peeters, and Stijn Van Nieuwerburgh

We show that the COVID-19 pandemic brought house price and rent declines in city centers, and price and rent increases away from the center, thereby flattening the bid-rent curve in most U.S. metropolitan areas. Across MSAs, the flattening of the bid-rent curve is larger when working from home is more prevalent, housing markets are more regulated, and supply is less elastic. Housing markets predict that urban rent growth will exceed suburban rent growth for the foreseeable future.

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Type
Journal Article
Date
2022

Working From Home and the Office Real Estate Apocalypse

Author
Gupta, Arpit, Vrinda Mittal, and Stijn Van Nieuwerburgh

Working from home resulted in a sharp contraction in office demand. We built a valuation model to find that the office stock lost about 45% in value. More for low-quality buildings and in cities with a larger IT sector and less for trophy buildings. We discuss the implications for mortgage lenders and the vitality of cities.

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Type
Journal Article
Date
2022

Office Real Estate as a Hedge against Inflation and the Impact of Lease Contracts

Author
De Wit, Ivo Servandus

This article analyzes the hedging potential of real estate and especially looks at the impact of lease contracts in various countries around the world on the inflation hedge capability for both expected and unexpected inflation. The dataset consists of direct real estate rent and capital value data for 59 cities/MSAs in 25 countries between 1991 and 2020 to make international comparison over a long time period possible. The results indicate that real estate is a good hedge against inflation, and especially against unexpected inflation.

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Type
Journal Article
Date
2022
Journal
Review of Economic Studies

Affordable Housing and City Welfare

Author
Favilukis, Jack, Pierre Mabille, and Stijn Van Nieuwerburgh

Housing affordability has become the main policy challenge for most large cities in the world. Zoning, rent control, housing vouchers, and tax credits are the main levers employed by policy makers. We build a new dynamic stochastic spatial equilibrium model to evaluate the effect of these policies on house prices, rents, residential construction, labor supply, output, income and wealth inequality, as well as the location decision of households within the city. The analysis incorporates risk, wealth effects, and resident landlords.

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Type
Journal Article
Date
2022

Take the Q Train: Value Capture of Public Infrastructure Projects

Author
Gupta, Arpit, Constantine Kontokosta, and Stijn Van Nieuwerburgh

We analyze the impact of the Second Avenue Subway (Q-train) construction on local real estate prices, which capitalize the benefits of transit spillovers. We find evidence of higher real estate prices in the vicinity of areas served by the new Q-train, relative to other areas in Manhattan's Upper East Side. Only 30% of the private value created by the subway leads is captured through property taxes, and is insufficient to cover the cost of the subway. Value capture through targeted property tax increases can help close the funding gap.

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Type
Journal Article
Date
2022

Can the Covid Bailouts Save the Economy?

Author
Elenev, Vadim, Tim Landvoigt, and Stijn Van Nieuwerburgh

The covid-19 crisis has led to a sharp deterioration in firm and bank balance sheets. The government has responded with a massive intervention in corporate credit markets. We study equilibrium dynamics of macroeconomic quantities and prices, and how they are affected by government intervention in the corporate debt markets. We find that the interventions should be highly effective at preventing a much deeper crisis by reducing corporate bankruptcies by about half, and short-circuiting the doom loop between corporate and financial sector fragility.

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Type
Journal Article
Date
2021

Global Risk Premiums on Direct Office Real Estate Returns

Author
De Wit, Ivo Servandus and Christopher Mayer

This article empirically examines the magnitude of risk premiums for direct real estate investments on a global basis. As this article analyzes ex-ante risk premiums over more than 25 years consistently across the world, it enhances current knowledge about the regional differences between risk premiums and helps long-term investors with their global portfolio allocation over time. On a global level, the authors find a risk premium of 4.1% for Gordon’s growth and 3.7% for two-stage growth model. The periodic growth model shows a slightly lower risk premium of 3.1%.

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Type
Journal Article
Date
2021
Journal
Journal of Financial Economics

Debt Relief and Slow Recovery: A Decade after Lehman

Author
Piskorski, Tomasz and Amit Seru

We follow a representative panel of millions of consumers in the U.S. from 2007 to 2017 and document several facts on the long-term effects of the Great Recession. There were about six million foreclosures in the ten-year period after Lehman's collapse. Owners of multiple homes accounted for 25% of these foreclosures, while comprising only 13% of the market. Foreclosures displaced homeowners, with most of them moving at least once. Only a quarter of foreclosed households regained homeownership, taking an average four years to do so.

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Type
Journal Article
Date
2021
Journal
Journal of Finance

Valuing Private Equity Strip by Strip

Author
Gupta, Arpit and Stijn Van Nieuwerburgh

We propose a new valuation method for private equity investments. First, we construct a cash-flow replicating portfolio for the private investment, using cash-flows on various listed equity and fixed income instruments. The second step values the replicating portfolio using a flexible asset pricing model that accurately prices the systematic risk in listed equity and fixed income instruments of different horizons.

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Type
Journal Article
Date
2021
Journal
Journal of Finance

Out-of-Town Home Buyers and City Welfare

Author
Favilukis, Jack and Stijn Van Nieuwerburgh

The major cities of the world have attracted a flurry of out-of-town (OOT) home buyers. Such capital inflows affect housing affordability, the spatial distribution of residents, construction, labor income, wealth, and ultimately welfare. We develop a spatial equilibrium model of a city with substantial heterogeneity among residents. We calibrate the model to the New York and Vancouver metro areas. The observed increase in OOT purchases is associated with 1.1% (5.0%) higher house prices and a 0.1% (0.34%) welfare loss in New York (Vancouver).

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Type
Journal Article
Date
2018
Journal
Journal of Financial Economics

Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks

Author
Buchak, Greg, Gregor Matvos, Tomasz Piskorski , and Amit Seru

Shadow bank market share in residential mortgage origination nearly doubled from 2007 to 2015, with particularly dramatic growth among online "fintech" lenders. We study how two forces, regulatory differences and technological advantages, contributed to this growth.

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Type
Journal Article
Date
2018
Journal
Brookings Papers on Economic Activity

Mortgage Market Design: Lessons from the Great Recession

Author
Piskorski, Tomasz and Amit Seru

The rigidity of mortgage contracts and a variety of frictions in the design of the market and the intermediation sector hindered efforts to restructure or refinance household debt in the aftermath of the financial crisis. In this paper, we focus on understanding the design and implementation challenges of ex ante and ex post debt relief solutions that are aimed at a more efficient sharing of aggregate risk between borrowers and lenders.

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Type
Journal Article
Date
2017
Journal
American Economic Review

Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

Author
Di Maggio, Marco, Amir Kermani, Ben Keys, Tomasz Piskorski , Rodney Ramcharan, Amit Seru, and Vincent Yao

Exploiting variation in the timing of resets of adjustable rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50%) induces a significant increase in car purchases (up to 35%). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults and an increase in house prices, car purchases, and employment.

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Type
Journal Article
Date
2017
Journal
Journal of Political Economy

Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program

Author
Agarwal, Sumit, Gene Amromin, Zahi Ben-David, Souphala Chomsisengphet, Tomasz Piskorski , and Amit Seru

We evaluate the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizeable financial incentives to renegotiate mortgages. HAMP increased intensity of renegotiations and prevented substantial number of foreclosures but reached just one-third of its targeted indebted households. This shortfall was in large part due to low renegotiation intensity of a few large intermediaries and was driven by intermediary-specific factors.

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Type
Journal Article
Date
2017
Journal
Journal of Political Economy

The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium

Author
Favilukis, Jack, Sydney Ludvigson, and Stijn Van Nieuwerburgh

This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk, and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium.

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Type
Journal Article
Date
2016
Journal
Journal of Economic Theory

Optimal Dynamic Contracts with Moral Hazard and Costly Monitoring

Author
Piskorski, Tomasz and Mark Westerfield

We introduce a tractable dynamic monitoring technology into a continuous-time moral hazard problem and study the optimal long-term contract between principal and agent. Monitoring adds value by allowing the principal to reduce the intensity of performance-based incentives, reducing the likelihood of costly termination. We present a novel characterization of optimal dynamic incentive provision when performance-based incentives may decline continuously to zero. Termination happens in equilibrium only if its costs are relatively low.

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Type
Journal Article
Date
2016
Journal
Annals of Applied Statistics

Maximizing the Information Content of a Balanced Matched Sample in a Study of the Economic Performance of Green Buildings

Author
Kilcioglu, Cinar

Buildings have a major impact on the environment through excessive use of resources, such as energy and water, and large carbon dioxide emissions. In this paper we revisit the study of Eichholtz et al. (2010) about the economics of environmentally sustainable buildings and estimate the effect of green building practices on market rents. For this, we use new matching methods that take advantage of the clustered structure of the buildings data.

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Type
Journal Article
Date
2016
Journal
Review of Financial Studies

Misinformed Speculators and Mispricing in the Housing Market

Author
Chinco, Alex and Christopher Mayer

This paper examines the contribution of out-of-town second-house buyers to mispricing in the housing market. We show that demand from out-of-town second-house buyers during the mid 2000s predicted not only house-price appreciation rates but also implied-to-actual-rent-ratio appreciation rates, a proxy for mispricing. We then apply a novel identification strategy to address the issue of reverse causality.

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Type
Journal Article
Date
2016
Journal
Economica

Spatial Asset Pricing: A First Step

Author
Ortalo-Magne, Francois and Andrea Prat

People choose where to live and how much to invest in housing. Traditionally, the first decision has been the domain of spatial economics, while the second has been analyzed in finance. Spatial asset pricing is an attempt to combine equilibrium concepts from both disciplines. In the finance context, we show how spatial decisions can be framed as an expanded portfolio problem. Within spatial economics, we identify the consequences of hedging motives for location decisions.

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Type
Journal Article
Date
2015
Journal
Journal of Finance

Asset Quality Misrepresentation by Financial Intermediaries: Evidence from the RMBS Market

Author
Piskorski, Tomasz, Amit Seru, and James Witkin

We document that contractual disclosures by intermediaries during the sale of mortgages contained false information about the borrower's housing equity in 7–14% of loans. The rate of misrepresented loan default was 70% higher than for similar loans. These misrepresentations likely occurred late in the intermediation and exist among securities sold by all reputable intermediaries. Investors — including large institutions — holding securities with misrepresented collateral suffered severe losses due to loan defaults, price declines, and ratings downgrades.

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Type
Journal Article
Date
2014
Journal
American Economic Review

Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide

Author
Mayer, Christopher, Edward Morrison, Tomasz Piskorski , and Arpit Gupta

We investigate whether homeowners respond strategically to news of mortgage modification programs by defaulting on their mortgages. We exploit plausibly exogenous variation in modification policy induced by U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers with subprime mortgages throughout the country. Using a difference-in-difference framework, we find that Countrywide's relative delinquency rate increased more than ten percent per month immediately after the program's announcement.

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Type
Journal Article
Date
2014
Journal
American Economic Journal: Microeconomics

On the Political Economy of Urban Growth: Homeownership versus Affordability

Author
Ortalo-Magne, Francois and Andrea Prat

We study the equilibrium properties of an overlapping-generation economy where agents choose where to locate and how much housing to own, and city residents vote on the number of new building permits every period. Undersupply of housing persists in equilibrium under conditions we characterize. City residents invest in housing because they expect their investment to be protected by a majority opposed to urban growth. They vote against growth because they have invested in local housing.

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Type
Journal Article
Date
2013
Journal
Journal of Financial Economics

The Inefficiency of Refinancing: Why Prepayment Penalties Are Good for Risky Borrowers

Author
Mayer, Christopher, Tomasz Piskorski , and Alexei Tchistyi

This paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default. When considering improvements in the borrower's creditworthiness as one of the reasons for refinancing mortgages, we show that refinancing penalties can be welfare improving, and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates, reduced defaults, and increased availability of credit.

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Type
Journal Article
Date
2013
Journal
American Economic Journal: Economic Policy

Superstar Cities

Author
Mayer, Christopher, Todd Sinai, and Joseph Gyourko

Large long-run differences in average house price appreciation across metropolitan areas over the past 50 years have led to wide spatial dispersion in house prices. We show this can be explained in large part by inelastic supply of land in some attractive locations combined with an increasing number of high-income households nationally. The resulting high house prices crowd out lower-income households from living in high price growth superstar housing markets, inducing a right-shift in the local area income distribution.

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Type
Journal Article
Date
2012
Journal
Journal of Financial Economics

Optimal Securitization with Moral Hazard

Author
Hartman-Glaser, Barney, Tomasz Piskorski , and Alexei Tchistyi

We consider the optimal design of mortgage-backed securities (MBS) in a dynamic setting in which a mortgage underwriter with limited liability can engage in costly hidden effort to screen borrowers and can sell loans to investors. We show that (i) the timing of payments to the underwriter is the key incentive mechanism, (ii) the maturity of the optimal contract can be short, and that (iii) bundling mortgages is efficient as it allows investors to learn about underwriter effort more quickly, an information enhancement effect.

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Type
Journal Article
Date
2011
Journal
Review of Financial Studies

Stochastic House Appreciation and Optimal Mortgage Lending

Author
Piskorski, Tomasz and Alexei Tchistyi

We characterize the optimal mortgage contract in a continuous time setting with stochastic growth in house price and income, costly foreclosure, and a risky borrower who requires incentives to repay his debt. We show that many features of subprime loans can be consistent with properties of the optimal contract and that, when house prices decline, mortgage modification can create value for borrowers and lenders.

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Type
Journal Article
Date
2011
Journal
Annual Review of Economics

Housing Bubbles: A Survey

Author
Mayer, Christopher

The past 25 years have represented two periods of extreme movements in U.S. and global house prices that appear to be much larger than can be easily explained by changes in fundamentals. These episodes spurred research on housing bubbles that focused attention on the role of outsized expectations in excessive house price appreciation. By contrast, some economists pointed to alternative explanations for excess volatility, including liquidity constraints, lending cycles, search externalities, and zoning delays.

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Type
Journal Article
Date
2011
Journal
Journal of Economic Dynamics & Control

Risk, Uncertainty, and Option Exercise

Author
Wang, Neng and Jianjun Miao

Many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty. Motivated by experimental evidence such as the Ellsberg Paradox, we follow Knight (1921) and distinguish risk from uncertainty. To afford this distinction, we adopt the multiple-priors utility model. We show that the impact of ambiguity on the option exercise decision depends on the relative degrees of ambiguity about continuation payoffs and termination payoffs. Consequently, ambiguity may accelerate or delay option exercise.

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Type
Journal Article
Date
2011
Journal
Fordham Urban Law Journal

The Use and Abuse of Blight in Eminent Domain

Author
Gold, Martin and Lynne Sagalyn

Blight findings have functioned as a cornerstone for condemnation since the great urban decline of the mid-twentieth century prompted governments at all levels throughout the country to intervene in the real estate market. Elements of blight, and then the term itself, became a basis for this intervention. But the use of blight as a basis for takings has become increasingly controversial as its application has migrated from slum clearance to urban renewal, then to economic development projects, and on to revenue-enhancing projects.

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Type
Journal Article
Date
2010
Journal
Journal of Financial Economics

Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis

Author
Piskorski, Tomasz, Amit Seru, and Vikrant Vig

We examine whether securitization impacts renegotiation decisions of loan servicers, focusing on their decision to foreclose a delinquent loan. Conditional on a loan becoming seriously delinquent, we find a significantly lower foreclosure rate associated with bank-held loans when compared to similar securitized loans: across various specifications and origination vintages, the foreclosure rate of delinquent bankheld loans is 3% to 7% lower in absolute terms (13% to 32% in relative terms).

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Type
Journal Article
Date
2010
Journal
Review of Financial Studies

Optimal Mortgage Design

Author
Piskorski, Tomasz and Alexei Tchistyi

This article studies optimal mortgage design in a continuous-time setting with volatile and privately observable income, costly foreclosure, and a stochastic market interest rate. We show that the features of the optimal mortgage are consistent with an option adjustable-rate mortgage (option ARM). Under the optimal contract, the borrower is given discretion of how much to repay until his balance reaches a certain limit. The default rates and interest rate payment on the mortgage correlate positively with the market interest rate.

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Type
Journal Article
Date
2010
Journal
Journal of Economic Theory

Risky Human Capital and Deferred Capital Income Taxation

Author
Grochulski, Borys and Tomasz Piskorski

We study the structure of optimal wedges and capital taxes in a dynamic Mirrlees economy with endogenous distribution of skills. Human capital is a private, stochastic state variable that drives the skill process of each individual. Building on the findings of the labor literature, we construct a tractable life-cycle model of human capital evolution with risky investment and stochastic depreciation.

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Type
Journal Article
Date
2010
Journal
Journal of Urban Economics

Local Response to Fiscal Incentives in Heterogeneous Communities

Author
Rockoff, Jonah

I examine the impact of a property tax relief program in New York State that lowered the marginal cost of school expenditure to homeowners. I find that a typical school district, which received 20% of its revenue through the program in the school year 2001–2002, raised expenditure by 4.1% and local property taxes by 6.8% in response to the program. I then examine how the preferences of various groups of local taxpayers affect educational spending by identifying systematic variation across districts in the response to fiscal incentives.

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Type
Journal Article
Date
2009
Journal
CFA Institute Conference Proceedings Quarterly

Anatomy of a Crisis

Author
Daniel, Kent

The global economic crisis in September 2008 was preceded by the crises of 2007: the subprime mortgage crisis, the corporate credit crunch, and the "quant liquidity crunch." The evolution of these crises appears to have resulted from a set of "deleveraging" that started in the subprime mortgage market but then spilled over into a number of other asset markets and resulted in large premiums in multiple markets. To respond to these events, new proprietary factors have been deployed that are not vulnerable to the actions of others.

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Type
Journal Article
Date
2009
Journal
Yale Journal on Regulation

Essay: A New Proposal for Loan Modifications

Author
Mayer, Christopher, Edward Morrison, and Tomasz Piskorski

We propose a new three-pronged plan to address the recent harmful flood of foreclosures. Our plan would address the major barriers that inhibit the ability of third-party servicers to modify mortgages the way portfolio lenders are now doing with greater success. The plan provides greater compensation for servicers to perform their duties, removes legal constraints that inhibit modification, and addresses critical second liens that often get in the way of effective mortgage modifications.

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Type
Journal Article
Date
2009
Journal
Journal of Financial Economics

Neighborhood Matters: The Impact of Location on Broad Based Stock Option Plans

Author
Kedia, Simi and Shivaram Rajgopal

We find that fixed effects related to the location of firm's headquarters explain variation in broad based option grants after controlling for industry effects and firm characteristics traditionally known to affect option granting. Location matters because of local labor market conditions and social interaction with neighboring firms.

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Type
Journal Article
Date
2009
Journal
The B.E. Journal of Economic Analysis & Policy

The Mortgage Market Meltdown and House Prices

Author
Hubbard, R. Glenn and Christopher Mayer

This paper argues that the U.S. mortgage debacle must be analyzed in the broader setting of global real estate markets. Recent U.S. home price growth closely tracked increases in other developed economies. The analysis distinguishes among market regions in terms of supply elasticity and localized transactions-costs. A series of user-cost models are presented which imply that interest rate fluctuations must figure prominently in any explanation of movements in price/rent ratios. National factors such as the expansion of subprime credit must also be accounted for.

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Type
Journal Article
Date
2009
Journal
Journal of Economic Perspectives

The Rise in Mortgage Defaults

Author
Mayer, Christopher, Karen Pence, and Shane M. Sherlund

The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as "subprime" or "near-prime." The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income.

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Type
Journal Article
Date
2008
Journal
Journal of Finance

Agency Conflicts, Investment, and Asset Pricing

Author
Wang, Neng and Rui Albuquerque

The separation of ownership and control allows controlling shareholders to pursue private benefits. We develop an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical evidence, the model predicts that countries with weaker investor protection have more incentives to overinvest, lower Tobin's q, higher return volatility, larger risk premia, and higher interest rate.

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Type
Journal Article
Date
2008
Journal
American Economic Review

Estimates of the Impact of Crime Risk on Property Values from Megan's Laws

Author
Rockoff, Jonah and Leigh Linden

We combine data from the housing market with data from the North Carolina Sex Offender Registry to estimate how individuals value living in close proximity to a convicted criminal. We use the exact location of sex offenders to exploit variation in the threat of crime within small homogeneous groupings of homes, and we use the timing of sex offenders' arrivals to control for baseline property values in the area. We find statistically and economically significant negative effects of sex offenders' locations that are extremely localized.

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Type
Journal Article
Date
2007
Journal
Journal of the American Planning Association

Public/Private Development: Lessons from History, Research, and Practice

Author
Sagalyn, Lynne

Public/private partnerships have become a favored strategy for implementing complex urban developments in the United States and Western Europe, but the large volume of literature on the topic falls short of providing city planners, development experts, and policy analysts the knowledge needed for either teaching or practice. In the late 1970s, the blurring of lines between public and private action spurred significant intellectual debate in the U.S.

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Type
Journal Article
Date
2007
Journal
Journal of Financial Economics

Investment Under Uncertainty and Time-Inconsistent Preferences

Author
Wang, Neng and Steven Grenadier

While standard real options models assume that agents possess a constant rate of time preference, there is substantial evidence that agents are impatient about choices in the short term but are patient when choosing between long-term alternatives. We extend the real options framework to model the investment-timing decisions of entrepreneurs with time-inconsistent preferences.

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Type
Journal Article
Date
2007
Journal
Journal of Financial Economics

Investment, Consumption, and Hedging Under Incomplete Markets

Author
Wang, Neng and Jianjun Miao

Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. We extend the standard real options approach to an incomplete markets environment and analyze the joint decisions of business investments, consumption/savings, and portfolio selection. For a lumpsum investment payoff and an agent with a sufficiently strong precautionary savings motive, an increase in volatility can accelerate investment, contrary to the standard real options analysis.

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Type
Journal Article
Date
2006
Journal
Journal of Monetary Economics

Generalizing the Permanent-Income Hypothesis: Revisiting Friedman's Conjecture on Consumption

Author
Wang, Neng

Friedman's contribution to the consumption literature goes well beyond the seminal permanent-income hypothesis. He conjectured that the marginal propensity to consume out of financial wealth shall be larger than out of "human wealth," the present discounted value of future labor income. I present an explicitly solved model to deliver this widely-noted consumption property by specifying that the conditional variance of changes in income increases with its level.

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Type
Journal Article
Date
2005
Journal
Journal of Economic Perspectives

Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions

Author
Mayer, Christopher and Todd Sinai

How does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble? In this paper, we explain how to assess the state of house prices - both whether there is a bubble and what underlying factors support housing demand - in a way that is grounded in economic theory. In doing so, we correct four common fallacies about the costliness of the housing market.

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Type
Journal Article
Date
2005
Journal
Journal of Financial Economics

Investment Timing, Agency, and Information

Author
Grenadier, Steven and Neng Wang

This paper provides a model of investment timing by managers in a decentralized firm in the presence of agency conflicts and information asymmetries. When investment decisions are delegated to managers, contracts must be designed to provide incentives for managers to both extend effort and truthfully reveal private information. Using a real options approach, we show that an underlying option to invest can be decomposed into two components: a manager's option and an owner's option. The implied investment behavior differs significantly from that of the first-best no-agency solution.

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Type
Journal Article
Date
2004
Journal
Journal of Monetary Economics

Precautionary Saving and Partially Observed Income

Author
Wang, Neng

I propose an intertemporal precautionary saving model in which the agent's labor income is subject to (possibly correlated) shocks with different degrees of persistence and volatility. However, he only observes his total income, not individual components. I show that partial observability of individual components of income gives rise to additional precautionary saving due to estimation risk, the error associated with estimating individual components of income. This additional precautionary saving is higher, when estimation risk is greater.

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