Big Data in Household Finance
Paper Session
Friday, Jan. 6, 2017 1:00 PM – 3:00 PM
Hyatt Regency Chicago, Plaza B
- Chair: Stefan Nagel, University of Michigan
Portfolio Choices, Firm Shocks and Uninsurable Wage Risk
Abstract
Assessing the importance of uninsurable wage risk for individual financial choices faces two challenges. First, the identification of the marginal effect requires a measure of at least one component of risk that cannot be diversified or avoided. Moreover, measures of uninsurable wage risk must vary over time to eliminate unobserved heterogeneity. Second, evaluating the economic significance of risk requires knowledge of the size of all the wage risk actually faced. Existing estimates are problematic because measures of wage risk fail to satisfy the ”non-avoidability” requirement. This creates a downward bias which is at the root of the small estimated effect of wage risk on portfolio choices. To tackle this problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of uninsurable risk. Using this measure to instrument total variability in individual earnings, we find that the marginal effect of uninsurable wage risk is much larger than estimates that ignore endogeneity. We bound the economic impact of risk and find that its overall effect is contained, not because its marginal effect is small but because its size is small. And the size of uninsurable wage risk is small because firms provide substantial wage insurance.The Effects of Experience on Investor Behavior: Evidence From India's IPO Lotteries
Abstract
We exploit the randomized allocation of stocks in 54 Indian IPO lotteries to 1.5 million investors between 2007 and 2012 to provide new estimates of the causal effect of investment experiences on future investment behavior. We find that investors experiencing exogenous gains in IPO stocks (the treatment) are more likely to apply for future IPOs, increase trading in their portfolios, exhibit a stronger disposition effect, and tilt their portfolios towards the sector of the treatment IPO. Treatment effects vary with the characteristics of the treatment (size, variability, and salience of the gain), and are stronger for smaller and younger accounts. Treatment effects persist for larger and older accounts, suggesting that experiencing gains exerts a powerful force even on sophisticated players.Who Sold During the Crash of 2008-9? Evidence From Tax-Return Data on Daily Sales of Stock
Abstract
We examine individual stock sales from 2008 to 2009 using population tax return data. Individuals sold stocks more intensely in the days following episodes of market tumult, and the increase was concentrated among older investors and those with the highest incomes. The share of sales by the top 0.1 percent of income recipients and other top income groups rose sharply following the Lehman Brothers bankruptcy and remained elevated throughout the financial crisis. Tumult-driven sales were not concentrated in any one sector, but mutual fund sales responded more strongly than stock sales. Additional analysis suggests that gross sales in tax return data are informative about unobserved net sales.Discussant(s)
Stijn van Nieuwerburgh
, New York University
Michaela Pagel
, Columbia University
Rawley Heimer
, Federal Reserve Bank of Cleveland
Terrance Odean
, University of California-Berkeley
JEL Classifications
- D1 - Household Behavior and Family Economics
- G1 - Asset Markets and Pricing