The Partisanship of Financial Regulators (with Joseph Engelberg, Asaf Manela, and Jared Williams)

Abstract: We analyze the partisanship of Securities and Exchange Commissioners (SEC) and members of the Federal Reserve Board of Governors (Fed). Using the language-based approach of Gentzkow, Shapiro, and Taddy (Econometrica, 2019), we identify partisan phrases in Congress, such as “red tape” and “climate change,” and observe their usage among regulators. Although the Fed has remained relatively non-partisan throughout our sample period (1930-2019), we find that partisanship among SEC Commissioners rose recently to an all-time high. This recent partisanship at the SEC appears in both the language of new SEC rules and the voting behavior of SEC Commissioners.

Working Papers

The Portfolio-Driven Disposition Effect (with Li An, Joseph Engelberg, Baolian Wang, and Jared Williams)

Abstract: The disposition effect for a stock significantly weakens if the portfolio is at a gain, but is large when it is at a loss. We find this portfolio-driven disposition effect (PDDE) in four independent settings: US and Chinese archival data, as well as US and Chinese experiments. The PDDE is robust to a variety of controls in regression specifications and is not explained by extreme returns, portfolio rebalancing, tax considerations, or investor heterogeneity. Our evidence suggests investors form mental frames at the stock and portfolio level and these frames combine to generate the PDDE.

Disastrous Selling Decisions: The Disposition Effect and Natural Disasters (solo-authored)

Abstract: Combining county-level natural disaster data with individual investor transactions, I document an increased disposition effect for investors impacted by a natural disaster. This effect is increasing in disaster severity and decreasing in time following the event, suggesting that extreme natural disasters can significantly influence investor behavior, especially in the short term. These findings are not explained by liquidity needs, tax incentives, or informed trading. The effect strengthens with local stocks and investors’ duration at their residence. Moreover, the increased disposition effect of disaster-affected investors is consistent with investors deriving utility from damages caused by environmental influences and realized gains/losses.

The Social Welfare of Marketplace Lending: Evidence from Natural Disasters (with Daniel Bradley and Sarath Valsalan)

Abstract: Using natural disasters as exogenous shocks to the peer-to-peer (P2P) loan market, we document a local increase in loan demand post-disaster, which is significantly elevated in low deposit areas. Interest rates and delinquencies from loans approved during this demand shock are similar to pre-event levels. Loans allocated prior to a disaster are more likely to default, but loans granted a hardship delay of payment accommodation exhibit a reduction in default probability, providing relief to borrowers and reduced costs to investors. Contrary to regulatory concerns that P2P lending is predatory, our results suggest they can provide positive social welfare benefits.