Publication and Forthcoming Papers
Securitization of Assets with Payment Delay Risk: A Financial Innovation in the Real Estate Market. with Hao Zhang and Hongbiao Zhao (Forthcoming at Journal of Futures Markets)
Be Cautious in the Last Month: The Sunk Cost Fallacy Held by Car Insurance Policyholders International Economic Review, 2021, Vol. 62(3), 1199-1236. https://doi.org/10.1111/iere.12512 https://ssrn.com/abstract=3799954
Does Capital Structure Differently Affect Incumbents’ Responses to Entry Threat and Actual Entry? Journal of Economics & Management Strategy, 2019, Vol. 28(4), 585-613. (lead and featured article)
https://doi.org/10.1111/jems.12316
Abstract
Some theories predict that firms with higher financial leverage compete more aggressively in product markets than firms with lower financial leverage, whereas others predict that lower-leverage firms compete more aggressively than higher-leverage firms. This paper studies how incumbent airlines’ capital structure affects their responses to Southwest Airlines’ entry threat and actual entry. The results indicate that, when responding to entry threat, lower-leverage incumbents cut prices more aggressively than higher-leverage incumbents; in contrast, when responding to actual entry, higher-leverage incumbents cut prices more aggressively than lower-leverage incumbents.
Per-Customer Quantity Limit and Price Discrimination: Evidence from the U.S. Residential Mortgage Market. International Journal of Industrial Organization, 2020, Vol. 70. (lead article in regular paper section)
https://doi.org/10.1016/j.ijindorg.2020.102588
Abstract
Theoretically, if firms face a regulatory per-customer quantity limit, they should have an incentive to discriminatively charge high-demand customers higher prices and make them just willing to buy a quantity equal to the limit. In the U.S. residential mortgage industry, mortgages with origination balances above the conforming loan limits cannot be guaranteed by Government-Sponsored Enterprises, which make lenders face a per-customer quantity limit. This paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination. This study rules out the alternative explanation that those borrowers are of higher risk (lending cost) than other borrowers.
Momentum and Reversion to Fundamentals: Are They Captured by Households’ Subjective Expectations of House Prices? Journal of Housing Economics, 2020, Vol. 49. 101687
https://doi.org/10.1016/j.jhe.2020.101687
Abstract
Many studies documented that actual asset-price movements exhibit momentum and reversion to fundamentals. We study real estate markets and find that households’ subjective house-price expectations capture momentum but not reversion to fundamentals. Moreover, if current house prices are deviated upwards (downwards) from the long-run relationship with economic fundamentals, households will have even higher (lower) expectations of future appreciations. Additional empirical results suggest that the more likely reason is that households do not have accurate perception of the fundamental value (fundamental-misperception conjecture) than that they do not believe that mispricing will be quickly corrected by the market (mispricing-persistence conjecture).
Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection. Journal of Real Estate Finance and Economics, 2016, 53(3), 392-417. with Donald Haurin, Wei Shi, Stephanie Moulton, Jason Seligman & Max Schmeiser
Working Papers
Can Housing Boom Elevate Financing Costs of Financial Institutions? with Shuoxun Zhang (R&R at Journal of Development Economics)
Correlation in Mortgage Defaults with Hongbiao Zhao (Reject and Resubmit at Journal of Banking and Finance)
Estimating a Dynamic Discrete Choice Model with Partial Observability for Household Mortgage Default and Prepayment Behaviors (2013 G.S. Maddala Prize in Econometrics)
Abstract
Households are forward-looking when deciding whether to default on or refinance their mortgages. There are two types of default generated by two mechanisms: illiquidity-triggered default and strategic default. However, researchers can observe only whether households default but not whether the default is illiquidity-triggered or strategic. Moreover, typically researchers can observe only whether households prepay but not whether the prepayment is due to refinancing or moving. This paper extends the conditional choice probability (CCP) method to estimate a dynamic discrete choice model with partially observable outcomes. Exclusion restrictions and identification at infinity arguments provide the identification conditions. Counterfactual analyses for foreclosure-mitigating loan modification policies show that writing down the principal can reduce both illiquidity-triggered default and strategic default, that interest reduction can reduce illiquidity-triggered default but cannot effectively reduce strategic default, and that term extension can reduce illiquidity-triggered default but will increase strategic default.
Asset Securitization and Firm Expansion in Product Markets. (under review)
Spatial Competition with Online Platforms: An Empirical Analysis of the Wealth Management Product Market. with Shuoxun Zhang (under review)
House Price Expectations and Mortgage Default Decisions (under review)
Securitization of Assets with Payment Delay Risk: A Financial Innovation in the Real Estate Market. with Hao Zhang and Hongbiao Zhao (Forthcoming at Journal of Futures Markets)
Be Cautious in the Last Month: The Sunk Cost Fallacy Held by Car Insurance Policyholders International Economic Review, 2021, Vol. 62(3), 1199-1236. https://doi.org/10.1111/iere.12512 https://ssrn.com/abstract=3799954
Does Capital Structure Differently Affect Incumbents’ Responses to Entry Threat and Actual Entry? Journal of Economics & Management Strategy, 2019, Vol. 28(4), 585-613. (lead and featured article)
https://doi.org/10.1111/jems.12316
Abstract
Some theories predict that firms with higher financial leverage compete more aggressively in product markets than firms with lower financial leverage, whereas others predict that lower-leverage firms compete more aggressively than higher-leverage firms. This paper studies how incumbent airlines’ capital structure affects their responses to Southwest Airlines’ entry threat and actual entry. The results indicate that, when responding to entry threat, lower-leverage incumbents cut prices more aggressively than higher-leverage incumbents; in contrast, when responding to actual entry, higher-leverage incumbents cut prices more aggressively than lower-leverage incumbents.
Per-Customer Quantity Limit and Price Discrimination: Evidence from the U.S. Residential Mortgage Market. International Journal of Industrial Organization, 2020, Vol. 70. (lead article in regular paper section)
https://doi.org/10.1016/j.ijindorg.2020.102588
Abstract
Theoretically, if firms face a regulatory per-customer quantity limit, they should have an incentive to discriminatively charge high-demand customers higher prices and make them just willing to buy a quantity equal to the limit. In the U.S. residential mortgage industry, mortgages with origination balances above the conforming loan limits cannot be guaranteed by Government-Sponsored Enterprises, which make lenders face a per-customer quantity limit. This paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination. This study rules out the alternative explanation that those borrowers are of higher risk (lending cost) than other borrowers.
Momentum and Reversion to Fundamentals: Are They Captured by Households’ Subjective Expectations of House Prices? Journal of Housing Economics, 2020, Vol. 49. 101687
https://doi.org/10.1016/j.jhe.2020.101687
Abstract
Many studies documented that actual asset-price movements exhibit momentum and reversion to fundamentals. We study real estate markets and find that households’ subjective house-price expectations capture momentum but not reversion to fundamentals. Moreover, if current house prices are deviated upwards (downwards) from the long-run relationship with economic fundamentals, households will have even higher (lower) expectations of future appreciations. Additional empirical results suggest that the more likely reason is that households do not have accurate perception of the fundamental value (fundamental-misperception conjecture) than that they do not believe that mispricing will be quickly corrected by the market (mispricing-persistence conjecture).
Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection. Journal of Real Estate Finance and Economics, 2016, 53(3), 392-417. with Donald Haurin, Wei Shi, Stephanie Moulton, Jason Seligman & Max Schmeiser
Working Papers
Can Housing Boom Elevate Financing Costs of Financial Institutions? with Shuoxun Zhang (R&R at Journal of Development Economics)
Correlation in Mortgage Defaults with Hongbiao Zhao (Reject and Resubmit at Journal of Banking and Finance)
Estimating a Dynamic Discrete Choice Model with Partial Observability for Household Mortgage Default and Prepayment Behaviors (2013 G.S. Maddala Prize in Econometrics)
Abstract
Households are forward-looking when deciding whether to default on or refinance their mortgages. There are two types of default generated by two mechanisms: illiquidity-triggered default and strategic default. However, researchers can observe only whether households default but not whether the default is illiquidity-triggered or strategic. Moreover, typically researchers can observe only whether households prepay but not whether the prepayment is due to refinancing or moving. This paper extends the conditional choice probability (CCP) method to estimate a dynamic discrete choice model with partially observable outcomes. Exclusion restrictions and identification at infinity arguments provide the identification conditions. Counterfactual analyses for foreclosure-mitigating loan modification policies show that writing down the principal can reduce both illiquidity-triggered default and strategic default, that interest reduction can reduce illiquidity-triggered default but cannot effectively reduce strategic default, and that term extension can reduce illiquidity-triggered default but will increase strategic default.
Asset Securitization and Firm Expansion in Product Markets. (under review)
Spatial Competition with Online Platforms: An Empirical Analysis of the Wealth Management Product Market. with Shuoxun Zhang (under review)
House Price Expectations and Mortgage Default Decisions (under review)
