Publications

Debt Moratoria: Evidence from Student Loan Forbearance
with Michael Dinerstein and Constantine Yannelis
American Economic Review: Insights, June 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 (Job Market Paper)
with Ming-Jen Lin

Abstract: Brokerage commissions—once a major cost of trading for retail investors—have fallen substantially around the world over the past several decades. This paper studies how lower retail trading costs affect investor and market outcomes, leveraging a 2017 tax reform in Taiwan. The reform reduced the transaction tax by 15 basis points specifically for day trading, a short-term strategy dominated by retail investors. Using a difference-in-differences design and detailed transaction data, we document three individual-level findings. First, the reform leads to a significant 32% increase in day trading volume, driven disproportionately by less sophisticated traders. Second, and more surprisingly, day traders realize an improvement in net returns per dollar traded of only 10 basis points despite the 15-basis-point tax cut. Consistent with the view that transaction costs serve a disciplinary role, we trace this performance deterioration to more impulsive decision-making. Third, the average day trader is actually left worse off financially. Since day traders continue to incur losses on each trade even after the tax cut, higher trading volume generates additional losses that ultimately outweigh gains from tax savings. Moreover, the adverse impact is unequally distributed, concentrating among lower-wealth investors. At the market level, however, the surge in day trading following the reform improves market quality by increasing intraday liquidity and reducing volatility. Overall, our findings highlight a policy-relevant trade-off: interventions lowering retail trading costs can benefit markets while harming individual investors, especially the less sophisticated, by encouraging excessive trading.

Global Investor Expectations and Currency Return Predictability (Draft available upon request)

Abstract: Using survey data on exchange rate and interest rate expectations, this paper investigates the source of predictable exchange rate expectation errors 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