Phasing Out the GSEs

Landvoigt, Tim; Nieuwerburgh, Stijn Van; Elenev, Vadim

doi:10.3386/w21626

Cited by 5 publications

(1 citation statement)

References 30 publications

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“…For example, wealthy entrepreneurs are reluctant to invest in the stock market because they own undiversified stakes in a single private business (Heaton and Lucas (2000)). Recent work shows that, just as workers, businesses face substantial left‐tail risk during recessions (Salgado, Guvenen, and Bloom (2019)), with implications for the valuation of public equity (Elenev and Landvoigt (2023)).…”

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Countercyclical Income Risk and Portfolio Choices: Evidence from Sweden

CATHERINE,

SODINI,

ZHANG

2024

The Journal of Finance

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Using Swedish administrative panel data, we document that workers facing higher left‐tail income risk when equity markets perform poorly have lower portfolio equity share. In line with theory, the relationship between cyclical skewness and stock holdings increases with the share of human capital in a worker's total wealth and vanishes as workers get closer to retirement. Cyclical skewness also predicts portfolio differences within pairs of identical twins. Our findings show that households hedge against correlated tail risks, an important mechanism in asset pricing and portfolio choice models.

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Countercyclical Income Risk and Portfolio Choices: Evidence from Sweden

CATHERINE,

SODINI,

ZHANG

2024

The Journal of Finance

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Regional Redistribution Through the U.S. Mortgage Market

2015

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Regional shocks are an important feature of the U.S. economy. Households' ability to self-insure against these shocks depends on how they affect local interest rates. In the U.S., most borrowing occurs through the mortgage market and is influenced by the presence of government-sponsored enterprises (GSEs). We establish that despite large regional variation in predictable default risk, GSE mortgage rates for otherwise identical loans do not vary spatially. In contrast, the private market does set interest rates which vary with local risk, and we postulate that the lack of regional variation in GSE mortgage rates is likely driven by political pressure. We use a spatial model of collateralized borrowing to show that the national interest rate policy substantially affects welfare by redistributing resources across regions. * First draft: April 2014. We thank Sumit Agarwal, Heitor Almeida, Tom Davidoff, John Driscoll, Matthew Kahn, Arvind Krishnamurthy, John Leahy, Tomasz Piskorski, Stijn Van Nieuwerburgh, Monika Piazzesi, David Scharfstein, Johannes Stroebel, Adi Sunderam, Francesco Trebbi, and seminar participants at Berkeley Haas, Ennaudi Institute, Federal Reserve Board, HEC, Indian School of Business, Kellogg, MIT, National University of Singapore, NBER Monetary Economics Program Meeting, Ohio State, Rutgers, Stanford, Toronto, UBC, UCLA, University of Chicago Booth, University of Chicago Harris, University of Illinois, University of Michigan, Wharton, the FRIC 2014 conference on financial frictions, and the NBER conference on Financing Housing Capital for helpful comments and suggestions. Any remaining errors are our own. E-mail: Erik.Hurst@chicagobooth.edu; benkeys@uchicago.edu; Amit.Seru@chicagobooth.edu; Joseph.Vavra@chicagobooth.edu. I IntroductionThe Great Recession has led to wide disparities in economic activity across regions within the United States. The extent to which households can borrow to self-insure against these regional shocks depends crucially on the interest rate and how it varies with regional economic conditions. While theoretical models typically assume that regions within a monetary union share a common interest rate 1 , a recent empirical literature provides some evidence that this assumption may be violated. 2In this paper, we systematically assess the extent to which interest rates vary with local default risk in the U.S.mortgage market, which makes up the bulk of household borrowing. We document two new facts. First, despite large regional variation in predictable default risk, there is no spatial variation in mortgage rates which are securitized by government-sponsored enterprises (GSEs). GSEs securitize most of the loans in the U.S. mortgage market, which implies that the majority of borrowers face an interest rate which does not depend on their location. Second, this lack of risk-based pricing does not occur because this risk cannot be observed ex-ante: we show that otherwise similar non-GSE loans which are securitized in the private market increase (decrease) mortgage rat...

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Do New Capital Requirements Make Loans More Expensive? An Empirical Study for the Colombian Banking System

Remolina

2016

SSRN Journal

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Phasing Out the GSEs

Cited by 5 publications

References 30 publications

Countercyclical Income Risk and Portfolio Choices: Evidence from Sweden

Countercyclical Income Risk and Portfolio Choices: Evidence from Sweden

Regional Redistribution Through the U.S. Mortgage Market

Do New Capital Requirements Make Loans More Expensive? An Empirical Study for the Colombian Banking System

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