Publications

Debt Moratoria: Evidence from Student Loan Forbearance
with Michael Dinerstein and Constantine Yannelis
American Economic Review: Insights, 2024

Abstract: We evaluate the effects of the 2020 student debt moratorium. Using administrative credit panel data, we compare borrowers whose loans were frozen to borrowers whose loans were not frozen based on whether the government owned the loans. We estimate that borrowers used the new liquidity to increase borrowing on mortgages, auto loans, and credit cards rather than avoid delinquencies. The effects are concentrated among borrowers without delinquencies, who saw no change in credit scores. The results highlight an important complementarity between liquidity and credit, as liquidity increases the demand for credit even as the supply of credit is fixed.

Working Papers

The Economic Consequences of Lower Retail Trading Costs
with Ming-Jen Lin

Abstract: The economic benefits of lowering trading costs depend not only on the direct savings but also on how investors respond. This paper studies how cheaper retail trading affects individuals and the market through increased speculation. We exploit a 2017 reform in Taiwan that halved the transaction tax specifically for day trading. Using account-level transaction data, we find that investors’ responses cost more than the tax cut saves them. Trading increases, but the additional trades come disproportionately from less sophisticated investors, whose trades lose the most. Moreover, day traders’ gross returns per trade decline, suggesting that trade quality deteriorates. In the end, the tax cut reduces day traders’ net portfolio returns, especially for the least sophisticated investors. To parsimoniously explain these responses, we develop a model of trading with costly attention that illustrates the disciplinary role of transaction costs. At the market level, however, the increased retail speculation improves intraday liquidity and lowers volatility. Cheaper retail trading therefore involves a trade-off: it can benefit markets while harming individual investors.

Predictable Innovations in Subjective Risk Premia and Currency Returns

Abstract: Using survey data on exchange rate and interest rate expectations, this paper investigates the source of predictable currency returns by interest rate differentials. With a present value decomposition of exchange rates, I highlight that the predictable innovation in subjective currency risk premia plays a crucial role in explaining the ex-post predictability of exchange rate forecast errors, which results in predictable currency returns widely-documented in the literature. This is a novel channel of predictability not emphasized in exchange rate models featuring rational expectations or assuming investors make predictable errors for interest rates. As an illustration, I propose a reduced-form model with time-varying subjective perceptions of risk that generates predictable innovation in subjective risk premia. I further present empirical evidence that is consistent with a key property of the model—a positive relationship between subjective perceptions of risk and subjective return expectations.

Work in Progress

Casinos and Local Financial Outcomes
with Ari Anisfeld and Jordan Rosenthal-Kay