Intertemporal Variation Research Articles

Unveiling investors' substitution behavior: Stock trading decisions in response to housing market dynamics

Utilizing positive quasi-random shocks to local housing prices in Shanghai, we show that stock investors who experienced significant returns from the real estate market traded less actively, took less risk, and spent less effort trading. We confirm the effect of housing price changes on investors' trading behavior in a national sample. Our findings suggest a substitution effect between the real estate and stock market and highlight the importance of understanding investors' trading behavior in light of intertemporal variations in other asset market.

The Scars of Civil War: The Long-Term Welfare Effects of the Salvadoran Armed Conflict

This paper estimates the long-term effects on human capital accumulation and subsequent labor market outcomes of in utero and early childhood exposure to the civil war in El Salvador (1980–92), the second longest and deadliest civil conflict in Central America. Identification is obtained from spatial and intertemporal variation in the intensity of the conflict drawn from historical archive data comprising records of human casualties, disappearances, and refugees. The results show that people born in highly violent areas during the civil war saw a reduction in their probability of being employed by 6 percentage points, and of getting a high-skilled job by 5 percentage points, 20 to 30 years hence. The civil war also reduced their education by 0.8 year, as well as their enrollment and literacy rates. Subgroup analysis indicates that exposed males and indigenous groups experienced the largest losses in human capital and had weaker performance in the labor market. JEL Classification Codes: D31, I00, J13

Labor protection and stock price crash risk: Evidence from international equity markets

We utilize the exogenous intertemporal variation in employment protection across countries and study the impact of employment protection on international equity markets. We find robust evidence that firms located in countries with weak labor protection regulation exhibit a low level of one-year-ahead stock price crash risks relative to those in countries with strong labor protection regulation. It is consistent with the view that when employees face material unemployment risk, they are more incentivized to engage in information search and analysis, thereby curtailing the effectiveness of managerial bad news hoarding activities (i.e., the protection heightening risk hypothesis). Our findings are robust to a battery of sensitivity tests. Further evidence shows that the impact of employment protection on crash risk is more pronounced for firms with a higher proclivity to suppress bad news and for firms in countries with stronger legal enforcement. Our findings have important implications for policymakers concerning equity extreme risk and labor protection around the globe.

The gendered impacts of index-insurance on food-consumption: Evidence from southern Ethiopia

Index insurance has been promoted as an innovative strategy for enhancing long-term resilience to climate-related shocks and providing financial inclusion, particularly to poor women farmers in developing countries. In this paper, we evaluate the gendered impact of an index-based livestock insurance product on food consumption among pastoral households in southern Ethiopia. We exploit intertemporal variation in household risk exposure and insurance payouts to evaluate the ex ante and ex post insurance impacts and use randomly distributed discount coupons to instrument the insurance purchase variables. We find that during the pre-drought period, a previous season insurance purchase and the intensity of insurance coverage significantly and equally reduces food expenditure in male- and female-headed households. In the post-drought period, we find that an insurance payout significantly increases food expenditure per adult equivalent among female-headed households.

Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?

Using intertemporal variation in the bounding of a state’s minimum wage by the federal rate and business credit-score data for 15.2 million establishments, we find that the increase in labor costs caused by a higher federal minimum wage leads to lower business credit scores and worsens the financial health of small businesses in the affected states. In particular, small, young, labor-intensive, and minimum-wage-sensitive establishments located in affected states and those located in competitive and low-income areas experience higher financial stress. Increases in the minimum wage are associated with employment reductions and a higher exit rate for small businesses. Our results document some potential costs of a one-size-fits-all nationwide minimum wage for some small businesses. This paper was accepted by Gustavo Manso, finance. Funding: This work was supported by the Ewing Marion Kauffman Foundation Junior Faculty Fellowship. Supplemental Material: The data and internet appendix are available at https://doi.org/10.1287/mnsc.2022.4620 .

Managing the onset of a new disease in older age: Housing wealth, mortgage borrowing, and medication adherence

The relationship between wealth and health is an important yet complex topic for health research. While prior studies document the importance of wealth for healthy aging, the understanding of the mechanisms through which wealth supports health consumption is limited. We investigate the wealth-to-health link by explicitly modeling the effect of liquidating home equity through borrowing on health expenditures, measured here as cost-related non-adherence to prescription medications (CRN), following the onset of one of six costly diseases on or after age 65. Using individual-level data from the 2002–2018 waves of the U.S. Health and Retirement Study (3,772 respondents; 13,708 observations), we exploit exogenous spatial and intertemporal variation in ZIP-code level house values to instrument for borrowing. Results indicate each additional $10,000 in new mortgage borrowing is associated with a 1.6 percentage point reduction in CRN. In subsample regressions, this relationship is strongest for older adults for whom home equity is their largest source of wealth. In a falsification test, we find no relationship between house value changes and CRN for older renters, and no effect of mortgage borrowing on prescription drug non-adherence for health or memory reasons. Our results contribute to the literature by documenting how housing wealth can be tapped by older adults through borrowing to smooth health-related consumption following disease diagnosis. However, not all older homeowners are willing or able to borrow from home equity. Our findings suggest that it is not simply the stock of housing wealth that leads to better health outcomes, but instead the liquidation of housing wealth. Housing wealth is thus not a uniform social determinate of health for older homeowners as it is moderated by the ability to borrow.

Increasing yield and farm income of upland farmers: The case of Panay Island Upland Sustainable Rural Development Project in the Philippines

The 17th Sustainable Development Goal aims to enhance the international cooperation between developed and least-developed countries, and the Official Development Assistance (ODA) program is the largest source of external support in the attainment of this goal. The purpose of this study is to evaluate the effects of the Panay Island Upland Sustainable Rural Development Project (PIU-SRDP), an ODA project supported by the Korea International Cooperation Agency (KOICA) in partnership with the Department of Agriculture and the Local Government Units of project municipalities in the Philippines. We focused on Phase II of the PIU-SRDP, which implemented randomly various agriculture-based income-generating projects, aimed at improving the sustainable productivity of low-income farming households. Based on a spatial and intertemporal variations of the project, we exploit a difference-in-difference approach using household-level data. The results suggest that the project significantly increased the rice yield and farm income of beneficiaries. With the opposing views about the true impacts of ODA programs, our study shows evidence of the positive effects of an ODA project on farmer-beneficiaries. This study provides insights for future engagement and implementation of related community-based ODA, agriculture, and rural development projects.

Intertemporal variation in abnormal volume around earnings announcements: “Distraction” or “flocking-and-dispersing”?

We provide evidence that flocking-and-dispersing—not investor distraction—explains the negative relation between abnormal trading volume in stocks with earnings announcements and the number of “competing” earnings announcements on the same day.

Higher Minimum Wages Reduce Capital Expenditures

Using cross-state and intertemporal variation in whether a state’s minimum wage is bound by the federal minimum wage, we provide evidence that minimum wage increases lead U.S. public firms in minimum-wage-sensitive industries (i.e., retail, restaurant, and entertainment) to cut capital expenditures. These effects are concentrated one to two years after the law goes into effect. Prior to the minimum wage increase, investment trends are similar across minimum-wage-sensitive firms in bound versus unbound states, and we find little evidence that minimum wage changes affect U.S. public firm investment outside of these industries. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The internet appendix is available at https://doi.org/10.1287/mnsc.2022.4430 .

The Welfare Effects of Dynamic Pricing: Evidence From Airline Markets

Airfares fluctuate due to demand shocks and intertemporal variation in willingness to pay. I estimate a model of dynamic airline pricing accounting for both sources of price adjustments using flight‐level data. I use the model estimates to evaluate the welfare effects of dynamic airline pricing. Relative to uniform pricing, dynamic pricing benefits early‐arriving, leisure consumers at the expense of late‐arriving, business travelers. Although dynamic pricing ensures seat availability for business travelers, these consumers are then charged higher prices. When aggregated over markets, welfare is higher under dynamic pricing than under uniform pricing. The direction of the welfare effect at the market level depends on whether dynamic price adjustments are mainly driven by demand shocks or by changes in the overall demand elasticity.

Labor Protection and Corporate Misconduct: Evidence from International Equity Markets

We utilize the exogenous intertemporal variation in employment protection across countries and study the impact of employment protection on international equity markets. We find robust evidence that firms located in countries with weak labor protection regulation exhibit a low level of one-year-ahead stock price crash risk relative to those in countries with strong labor protection regulation. It is consistent with the view that, when employees face material unemployment risk, they are more incentivized to engage in information search and analysis, thereby curtailing the effectiveness of managerial bad-news-hoarding activities (i.e., the protection heightening risk hypothesis). Our finding is robust to a battery of sensitivity tests. Further evidence shows that the impact of employment protection on crash risk is more pronounced for firms with a higher proclivity to suppress bad news and for firms in countries with stronger legal enforcement. Our findings have important implications for policymakers concerning equity extreme risk and labor protection around the globe.

Socioeconomic efficiency of the Araguaia River Valley – Goiás: a deterministic frontier and Malmquist index approach

The present study aimed to evaluate socioeconomic efficiency in 41 Brazilian municipalities in the years 2014 and 2016 in the area comprised by the Araguaia River Valley, in the Central-West, Goiás state, Brazil. We used the data envelopment analysis and Malmquist index methods to estimate municipality efficiency and its intertemporal variation. In the frontier model, average income, per capita GDP, and average agricultural income were used as input, and for outputs, the following Municipality Performance Indexes: MPI-Work, MPI-Formal Work, MPI-per capita GDP, and MPI-Agriculture. Results obtained showed a desirable socioeconomic efficiency advance in municipalities, related to a period when agriculture impacted positively on indexes of productivity, per capita GDP, population's average gains, and municipal development index (MPI), with average efficiency in 2014 at 0.92 and 0.93 in 2016. The number of municipalities for each sample that obtained Malmquist index with Mₒ> 1 progress was higher than that with regression (Mₒ <1). Results are relevant considering the novelty in the analysis and show, in the period studied, the productivity and efficiency dynamics in municipalities as for inclusive and sustainable economic and social growth of a region so important in Brazil's Central-West context, and can aid effectively public policies for the Araguaia River Valley, in the state of Goiás, Brazil.

Searching for a Smart City: A Bibliographic Analysis of ‘Public Facing’ EU Smart City Projects

AbstractThe narrative used to describe smart cities, including the experimentation on them, affects the perception of the smart city. This study systematically assembles and analyses ‘public facing’ smart city project data from across the EU. Using a bibliographic analysis, including word frequency analyses across time and countries of project descriptions, we identify the dominant themes and constructs in the smart city narratives used by teams advancing smart city projects. The study highlights spatial and intertemporal variations in locational density, differing project content and the range of conceptual emphases. Results show that the main concern of smart city narratives in the EU is firmly centred on energy. We argue that policy‐makers should aim for better alignment of smart cities' narrative with citizens' perception or, at least, a wider description of the very nature of implemented projects to include those rather neglected aspects might attract more interest and citizens' involvement.

ESNEK EN KÜÇÜK KARELER YÖNTEMİ İLE TÜRKİYE’DEKİ KAMU BORCU SÜRDÜRÜLEBİLİRLİĞİNİN DİNAMİK ANALİZİ

This paper gauges the sustainability of public debt in Turkey from a time-varying perspective. The time-varying estimation techniques exhibit the whole portrait of intertemporal variations in the sustainability of public debt. To reap the benefit of time-varying models, we estimated a fiscal reaction function using the flexible least squares method. This method is a practical alternative to the other approaches in the literature. The results suggest that public debt sustainability has been established in Turkey through a transformation in the early 2000s but thereafter the fiscal performance has waned gradually. In recent years, the fiscal reaction parameter has hit negative levels after some 20 years of sturdiness. This finding indicates that the public debt is likely to become unsustainable should no necessary measures are promptly implemented. Nevertheless, the Covid – 19 pandemic appears to be an unexpected and important source of an impediment for the government to achieve short-run stabilization goals by skyrocketing social expenditures and transfers.

Malapportionment in space and time: Decompose it!

Existing studies on legislative malapportionment often conceptualize and measure this phenomenon with little regard to intertemporal variations and the malapportionment-generating process (MGP). Our conceptualization leads us to introduce a measure called α-divergence that can identify the vote inequality derived from various stages of MGP. Using an originally created database that covers 440 elections in 112 countries, we decompose the overall degree of malapportionment into three stages: malapportionment that arises at the stages of interstate apportionment, intrastate districting, and allotment of seats to special districts. We also provide analyses that can decompose the demographic and political factors contributing to the trends of the overall degree of malapportionment for selected countries.

Homeownership, Labor Supply, and Neighborhood Quality

This paper provides new evidence on the external neighborhood benefits of homeownership among low-income populations. A natural experiment in Israel generated large changes in neighborhood homeownership rates while holding fixed the residents and housing stock, two primary sources of bias in traditional estimates of homeownership effects. When public housing tenants are given the opportunity to buy their units, eventual buyers significantly increase their labor supply on both the extensive and intensive margins. The effects are felt in the neighborhood: when homeownership rates rise by 10 percentage points due to sales of these public housing units to sitting tenants, prices of neighborhood homes rise by 1.5-2%, reflecting an improvement in neighborhood quality. To address endogeneity in tenants' decisions to buy their homes, we use intertemporal and cross-sectional variation in government-set purchase price discounts, and we find similar results. We discuss the conditions under which these effects may be interpreted as homeownership effects, per se, versus privatization effects. Evidence supports the general relevance of the results for policies that increase homeownership among low income populations using financial incentives.

Limits of Arbitrage and Primary Risk Taking in Derivative Securities

Classic option pricing theory values a derivative contract via dynamic replication, and views the derivative as redundant relative to the replicating portfolio. In practice, while dynamic replication proves highly effective in drastically reducing the risk in derivative investments, the remaining risk can still be large and significant due to practical limits of arbitrage. Because of these limits, derivative securities can play primary roles in risk allocation and investors can demand compensation for taking these primary risks. This paper documents the effectiveness of delta hedging on U.S. stock options under practical situations, examines the cross-sectional and intertemporal variation of investment returns from writing options on different stocks, and attributes the return variation to variations in primary risk exposures in the delta-hedged option investments.

Druglords don’t stay at home: COVID-19 pandemic and crime patterns in Mexico City

ObjectiveTo investigate the effect of the COVID-19 pandemic on conventional crime and organized crime in Mexico City, Mexico. MethodsMexico City's Attorney General's Office reported crime data, covering domestic violence, burglary, robbery, vehicle theft, assault-battery, homicides, kidnapping, and extortion. We use an event study for the intertemporal variation across the 16 districts (municipalities) in Mexico City for 2019 and 2020. ResultsWe find a sharp decrease on crimes related to domestic violence, burglary, and vehicle theft; a decrease during some weeks on crimes related to assault-battery and extortion, and no effects on crimes related to robbery, kidnapping, and homicides. ConclusionsWhile our results show a decline in conventional crime during the COVID- 19 pandemic, organized crime remains steady. These findings have policy implications for catastrophic events around the world, as well as possible national security issues in Mexico.

Creditor Rights and Bank Loan Losses

AbstractWe develop hypotheses regarding the association between two types of creditor rights and bank loan losses. Contrary to prior research conclusions, bank lending risk is negatively associated with both restrictions on reorganization and the secured creditor being paid first. Using accounting disclosures, we develop novel empirical measures of the probability of default (PD) and loss given default (LGD) at the loan-portfolio level. Different types of creditor rights have differential effects pertaining to PD and LGD and exhibit significant intertemporal variation. We corroborate our cross-country findings using the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) shock to creditor rights.

Intertemporal variation in the information content of aggregate earnings and its effect on the aggregate earnings-return relation

We develop and test explanations for sources of intertemporal variation in the information content of aggregate earnings and how that variation explains variation in the relation between aggregate earnings growth and market returns over time. We find that the correlation between aggregate earnings growth and leading market-wide real output shocks (measured by the growth in the Federal Reserve Board’s index of industrial production) becomes more pronounced in the 1990s and 2000s, which explains why the aggregate earnings-return relation is significantly positive in this period. Further analysis shows that an increasingly positive relation between aggregate earnings growth and real output shocks is attributable to the changing nature of the economic activity in the United States, namely, a shift in the composition of firms toward financial services and away from manufacturing. Changes in accounting measurement rules over time to include more fair value estimates also play a role in explaining why the aggregate earnings–return relation has become significantly positive in recent decades.