Newsletter

The Rodney White Center’s newsletter, A Bite of Finance, is designed to highlight some of the Finance Department’s current research in a way that is interesting, relevant, and comprehensible to both academic and general audiences. Each month the topics will range from current trends to customary themes relating to financial economics.  Scroll down for the latest issue.

SEPTEMBER ISSUE

2022

THE RODNEY WHITE CENTER FOR FINANCIAL RESEARCH

A Bite Of Finance: The Latest From Wharton

FEATURE

Professor Nick Roussanov challenges the notion of a risk-return tradeoff

The central insight of asset pricing theory is that only systematic risk should be rewarded with high average returns. Challenging this insight, Professor Roussanov shows that a “beta-neutral” stock investment strategy that exploits stock characteristics but avoids systematic risk nevertheless delivers high average returns. Latent systematic risk factors earn negligible risk premia despite explaining virtually all of the common time-series variation in stock returns.

ARTICLE

Team of Wharton faculty and doctoral students explore the sources of wealth inequality 

Wealth inequality rose over the last forty years in large part because rich households held more long-term assets. Those assets experienced high returns thanks to a steady decline in interest rates. Professors Sylvain Catherine and Natasha Sarin, together with doctoral students Max Miller and James Paron, explain these patterns using a life-cycle model. According to the model, wealthy households should hold more long-term assets in order to hedge against interest-rate changes.

 

ARTICLE

Professor Michael Schwert studies the effects of state pension funding on house prices

The massive underfunding of state pensions puts a large burden on households: as governments balance their budgets, they will either raise taxes or provide fewer public goods and services. By studying state pension windfalls, Professor Schwert evaluates the value that households place on improvements in their states’ pension funds. The study finds that one dollar of plausibly exogenous variation in pension asset returns increases house prices by approximately two dollars, implying that households place a large value on their state pension funds’ health.

 

ARTICLE

Professor Itay Goldstein analyzes how bank transparency affects depositors’ behavior

How much do depositors really care about how transparent their banks are? Should we invest a lot of effort in regulating bank transparency? Is transparency even desirable? Professor Goldstein contributes to this debate by analyzing 25 years of depositors’ behavior (1994-2019) and showing that depositors do react to the transparency of banks’ data, particularly regarding the banks’ performance. Transparency, in turn, interacts with important variables such as deposit rates, investment patterns, and profitability. Intuitively, deposits that are not insured by the FDIC are those impacted by bank transparency.

ARTICLE

Professor Vincent Glode studies arms sales in financial markets

Many financial transactions are of a fixed-sum nature, in the sense that one party gaining implies that another party is losing. This feature has been shown to generate “arms races” that drive the excessive acquisition of trading advantages such as data and collocation services by multiple institutions. As these arms races rage on, other traders, such as retail investors, might however be tempted to exit financial markets instead of participating in these arms races. Professor Glode shows how the entities that sell these trading advantages (e.g., data providers and securities exchanges) maximize their profits by picking prices that lead to inefficiently low levels of market participation and liquidity. These entities benefit from making financial markets look “rigged” to unsophisticated investors.

 

 

Recent Past Issues

JULY 2022

IN THIS ISSUE

In this issue: the impacts of impact investing, collusion in the distressed-loan market, the macro effects of aging, new predictability in stock market returns, and political pushback to ESG.

MAY 2022

IN THIS ISSUE

In this issue: the economic effects of Roe v. Wade, the active side of passive ETFs, the post-LIBOR world, risk anomalies in stock returns, and the effects of interest rates on bank lending.

MARCH 2022

IN THIS ISSUE

In this issue: the link between volatility and liquidity; the unintended consequences of Quantitative Easing; why some households hold more stocks than others; how size matters in bond trading; and the effects of technological progress on rent-seeking.

JANUARY 2022

IN THIS ISSUE

In this issue: paying off the national debt, the effect of rising sea levels on muni bonds, gold’s value as an investment, the effects of capital controls on currency crises, and the environmental impacts of private equity.

NOVEMBER 2021

IN THIS ISSUE

Reassessing stock versus bond performance, synergies in FinTech lending, fracking’s long-term effects, the performance of ESG strategies, and PE investors’ effects on healthcare costs

SEPTEMBER 2021

IN THIS ISSUE

New findings on CEO stress, mutual fund flows, distressed stock returns, cash windfalls and entrepreneurship, information technology, and expectation errors

JULY 2021

IN THIS ISSUE

Professor Erik Gilje organized a Virtual Conference on Climate and Commodities that took place on April 23 and included a panel discussion with Professor Jeremy Siegel.

Research includes important studies on inflation risks for investors and the recent behavior of the Yuan;  a truly insightful new discussion on how government intervention can impact the renegotiation of private debts and help stop default waves across linked borrowers;  as well as a historical assessment of the role of banks in pre-WWI sovereign defaults.

MAY 2021

IN THIS ISSUE

Student loan forgiveness, decline in Entrepreneurship and collateralized debt obligations

 

MARCH 2021

IN THIS ISSUE

Social Security, bank debt, COVID -19 financial fragility, venture capitalists and more

JANUARY 2021

IN THIS ISSUE

COVID-19 bailouts, financing education and re-examining history

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