Essays in Financial Economics

In chapter 1, We study the US housing market using a proprietary dataset covering nearly 90 million transactions over 1998–2018. First, we document the evolution and quantify the contributions of non-primary housing demand to the housing cycle. Our findings suggest that the share of market timers grew substantially in the run-up to the global financial crisis, which amplified the boom-bust cycle, while out-of-state buyers partially propped up prices. Second, we use a novel quasi-natural experiment design to establish a causal relationship between housing speculation and prices. Third, we show that the rise of shadow banking is associated with riskier mortgages, more speculation, and jointly amplify the housing cycle. Chapter 2 revisits the exchange rate disconnect puzzle at the firm level. If a firm invoices a transaction in a foreign currency, a delay of payment between the transaction date and the settlement date exposes the firm to exchange rate risk. In their income statements, firms report such exchange rate gains and losses, signaling their exposure to currency risk. We focus on two countries, Japan and the United States, that exhibit a similar trade openness but two very different shares of foreign currency invoicing. We find that an appreciation of the yen significantly decreases the net income and investment of Japanese firms, but an appreciation of the dollar has no significant effect on the U.S. sample. Exchange rate risk appears linked to the value of Japanese firms: the higher the exposure to exchange rate risk according to their income statements, the higher the loadings of their equity returns on exchange rate returns. Chapter 3 examines the recent compositional shift in corporate capital and its impact on the investment sensitivity to funding costs. We show that the rising share of intangibles in U.S firms’ assets significantly dampens the stimulus effect of interest rate shocks. For a given surprise change to the fed funds rate, a one standard deviation above the mean in intangible capital intensity mutes the investment response by around 30%. These results hold in robust specifications, when isolating the pure interest rate effect, and controlling for other known factors such as leverage and firm growth. A number of characteristics of intangible capital can potentially explain the heterogeneous responses: collateral value, adjustment costs, project duration and depreciation rates. We propose a structural interpretation of the empirical findings in a quantitative model of heterogeneous firms.Ph.D