{"title":"Regulating inattention in fee-based financial advice","authors":"Roger M. Edelen , Kingsley Y.L. Fong , Jingyi Han","doi":"10.1016/j.jfineco.2024.103985","DOIUrl":"10.1016/j.jfineco.2024.103985","url":null,"abstract":"<div><div>We study the impact of disclosure and inattention on the decision to retain fee-based financial advice using a two-tiered natural regulatory experiment. Increased salience in fee disclosure raises the drop rate for advice, implying improved attention — particularly for relatively sophisticated investors. However, a novel auto-drop requirement for inattentive investors generates far more drops, implying limited attention despite salient disclosure — particularly for the unsophisticated. Contrary to studies of commission-based advice, we find that investors benefit from fee-based advice. Benefits are higher for less sophisticated investors, who tend to be detrimentally auto-dropped. Drops triggered by salient disclosure tend to be beneficial.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"164 ","pages":"Article 103985"},"PeriodicalIF":10.4,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142889330","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Household mobility and mortgage rate lock","authors":"Jack Liebersohn , Jesse Rothstein","doi":"10.1016/j.jfineco.2024.103973","DOIUrl":"10.1016/j.jfineco.2024.103973","url":null,"abstract":"<div><div>Rising interest rates can create “mortgage rate lock” for homeowners with fixed rate mortgages, who can hold onto their low rates as long as they stay in their homes but would have to take on new mortgages with higher rates if they moved. We show mobility rates fell in 2022 and 2023 for homeowners with mortgages, as market rates rose. We observe both absolute declines and declines relative to homeowners without mortgages, who are unaffected by mortgage rate lock. Mobility declines are not explained by changes in home values. Overall, our estimates imply that rising interest rates reduced mobility in 2022 and 2023 for households with mortgages by 16% and caused $20bn of deadweight loss.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"164 ","pages":"Article 103973"},"PeriodicalIF":10.4,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142825477","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stefano Cassella , Te-Feng Chen , Huseyin Gulen , Yan Liu
{"title":"Extracting extrapolative beliefs from market prices: An augmented present-value approach","authors":"Stefano Cassella , Te-Feng Chen , Huseyin Gulen , Yan Liu","doi":"10.1016/j.jfineco.2024.103986","DOIUrl":"10.1016/j.jfineco.2024.103986","url":null,"abstract":"<div><div>We propose a latent-variables approach to recover extrapolative beliefs from asset prices. We estimate a present-value model of the price–dividend ratio of the market that embeds both return extrapolation and cash-flow extrapolation, alongside discount rates and rational expectations of dividend growth. This approach allows us to measure extrapolation bias without having to rely on survey data, and it inherently guarantees that the researcher focuses on a set of beliefs that matter for price formation. We show that extrapolative beliefs extracted from prices are highly correlated with surveys and that survey-based and price-based extrapolative beliefs share similar predictive properties for future returns, with the former improving upon the latter.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"164 ","pages":"Article 103986"},"PeriodicalIF":10.4,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142889325","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The SOFR discount","authors":"Sven Klingler, Olav Syrstad","doi":"10.1016/j.jfineco.2024.103989","DOIUrl":"10.1016/j.jfineco.2024.103989","url":null,"abstract":"<div><div>The transition from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) affects the reference rate of floating-rate debt worth trillions of dollars. We provide the first evidence highlighting a <em>benefit</em> of the benchmark transition for debt markets. Focusing on the market for dollar-denominated floating rate notes (FRNs), we compare the yield spreads of FRNs linked to LIBOR and SOFR, issued by the same entity during the same month. After adjusting for the maturity-matched spreads from derivatives markets, we find significantly <em>lower</em> spreads for SOFR-linked FRNs. We link this <em>SOFR discount</em> to the enhanced price stability of SOFR-linked FRNs.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"164 ","pages":"Article 103989"},"PeriodicalIF":10.4,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143169715","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Caroline Flammer , Thomas Giroux , Geoffrey M. Heal
{"title":"Biodiversity finance","authors":"Caroline Flammer , Thomas Giroux , Geoffrey M. Heal","doi":"10.1016/j.jfineco.2024.103987","DOIUrl":"10.1016/j.jfineco.2024.103987","url":null,"abstract":"<div><div>We study biodiversity finance—the use of private capital to finance biodiversity conservation and restoration—which is a new practice in sustainable finance. First, we provide a conceptual framework that lays out how biodiversity can be financed by pure private capital and blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk private capital investments. The main element underlying both types of financing is the “monetization” of biodiversity, that is, using investments in biodiversity to generate a financial return for private investors. Second, we provide empirical evidence using deal-level data from a leading biodiversity finance institution. Our findings are consistent with a three-dimensional efficient frontier (return, risk, and biodiversity impact)—deals with a favorable risk-return profile tend to be financed by pure private capital, whereas for other deals the biodiversity impact needs to be sufficiently large for blended finance to be used. Overall, our results suggest that blended finance is an important tool for improving the risk-return profile of these projects, thereby increasing their appeal to private investors and crowding in private capital. Finally, our results suggest that private capital is unlikely to substitute for effective public policies in addressing the biodiversity crisis.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"164 ","pages":"Article 103987"},"PeriodicalIF":10.4,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142873917","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Financial Inclusion Across the United States","authors":"Motohiro Yogo , Andrew Whitten , Natalie Cox","doi":"10.1016/j.jfineco.2025.104003","DOIUrl":"10.1016/j.jfineco.2025.104003","url":null,"abstract":"<div><div>We study retirement and bank account participation for the universe of U.S. households with a member aged 50 to 59 in the administrative tax data. ZCTA-level average income, income inequality, and racial composition predict retirement account participation for low-income households, conditional on household income and regional price parities. Income inequality also predicts bank account participation for low-income households. We estimate the causal effect of access to an employer retirement plan on participation. Recent policy proposals for universal access with automatic enrollment could increase participation by 19 percentage points in the lowest income quintile over ten years.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"166 ","pages":"Article 104003"},"PeriodicalIF":10.4,"publicationDate":"2025-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143077768","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Loriana Pelizzon , Marti G. Subrahmanyam , Davide Tomio
{"title":"Central Bank–Driven Mispricing","authors":"Loriana Pelizzon , Marti G. Subrahmanyam , Davide Tomio","doi":"10.1016/j.jfineco.2025.104004","DOIUrl":"10.1016/j.jfineco.2025.104004","url":null,"abstract":"<div><div>We explore whether Quantitative Easing (QE) negatively affected the functioning of the treasury market. Focusing on the arbitrage between European sovereign bonds and their futures contracts, we show that the scarcity of treasuries created by QE led to a disconnect between the prices of identical assets. We identify three channels: reduced bond market liquidity, increased funding costs in the repo market, and a higher cost of carry. A change in a policy instrument allows us to identify scarcity as the main driver and rule out alternatives, such as balance sheet costs. Our results extend to other arbitrage relations involving treasuries.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"166 ","pages":"Article 104004"},"PeriodicalIF":10.4,"publicationDate":"2025-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143077764","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Svetlana Bryzgalova , Anna Pavlova , Taisiya Sikorskaya
{"title":"Strategic arbitrage in segmented markets","authors":"Svetlana Bryzgalova , Anna Pavlova , Taisiya Sikorskaya","doi":"10.1016/j.jfineco.2025.104008","DOIUrl":"10.1016/j.jfineco.2025.104008","url":null,"abstract":"<div><div>We propose a model in which arbitrageurs act strategically in markets with entry costs. In a repeated game, arbitrageurs choose to specialize in some markets, which leads to the highest combined profits. We present evidence consistent with our theory from the options market, in which suboptimally unexercised options create arbitrage opportunities for intermediaries. We use transaction-level data to identify the corresponding arbitrage trades. Consistent with the model, only 57% of these opportunities attract entry by arbitrageurs. Of those that do, 49% attract only one arbitrageur. Finally, we detail how market participants circumvent a regulation devised to curtail this arbitrage strategy.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"166 ","pages":"Article 104008"},"PeriodicalIF":10.4,"publicationDate":"2025-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143077762","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Optimal policy for behavioral financial crises","authors":"Paul Fontanier","doi":"10.1016/j.jfineco.2025.104005","DOIUrl":"10.1016/j.jfineco.2025.104005","url":null,"abstract":"<div><div>Should policymakers adapt their macroprudential and monetary policies when the financial sector is vulnerable to belief-driven boom-bust cycles? I develop a model in which financial intermediaries are subject to collateral constraints, and that features a general class of deviations from rational expectations. I show that distinguishing between the drivers of behavioral biases matters for the precise calibration of policy: when biases are a function of equilibrium asset prices, as in return extrapolation, new externalities arise, even in models that do not have any room for policy in their rational benchmark. These effects are robust to the degree of sophistication of agents regarding their future biases. I show how time-varying leverage, investment and price regulations can achieve constrained efficiency. Importantly, greater uncertainty about the extent of behavioral biases in financial markets reinforces incentives for preventive action.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"166 ","pages":"Article 104005"},"PeriodicalIF":10.4,"publicationDate":"2025-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143077767","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"ESG: A panacea for market power?","authors":"Philip Bond, Doron Levit","doi":"10.1016/j.jfineco.2024.103991","DOIUrl":"10.1016/j.jfineco.2024.103991","url":null,"abstract":"<div><div>We study the equilibrium effects of the “S” dimension of ESG under imperfect competition. ESG policies are pledges made by firms that constrain managers to treat their stakeholders better than market conditions alone dictate. Moderate policies limit market power and prompt managers to be more competitive; aggressive polices backfire, both for adopting firms and intended beneficiaries. In contrast to the “shareholder primacy” paradigm, competition in ESG policies under the “stakeholder capitalism” paradigm is a panacea for market power, delivering the first-best outcome in equilibrium. We discuss drivers behind the recent rise in ESG, ESG-linked compensation, and disclosure practices.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"165 ","pages":"Article 103991"},"PeriodicalIF":10.4,"publicationDate":"2025-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143050008","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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