3 May 2013

CEO Ability and Stock Return Volatility

Analyzing nearly 2,000 CEO turnovers in more than 1500 public U.S. firms between 1992 and 2006, Yihui Pan, Tracy Yue Wang, and Michael Weisbach find a strong relationship between CEO tenure and the firm’s stock return volatility. Volatility increases around the time of CEO turnover, and subsequently decreases. The researchers estimate that at the time of CEO turnover, uncertainty about management quality contributes to about 25 percent of the total stock return volatility.

2 May 2013

Something in the Water: Contaminated Drinking Water and Infant Health

Janet Currie, Joshua Graff Zivin, Katherine Meckel, Matthew Neidell, and Wolfram Schlenker examine New Jersey birth records and drinking water testing results for the period 1997 to 2007. They find that drinking water contamination has small effects on all children, but large effects on the birth weight and gestation of infants born to less educated mothers. They also find that the mothers who were most affected by contaminants were the least likely to move between their children's births.

1 May 2013

Hospital Industry Mergers Affect Prices

In recent years, many hospitals have merged, in part to gain bargaining leverage with managed care organizations (MCOs), leading to several antitrust trials. Using claims and discharge data from Virginia, Gautam Gowrisankaran, Aviv Nevo, and Robert Town estimate that MCO bargaining significantly restrains hospital prices relative to standard insurance.

30 April 2013

Real Commodity Prices over the Long Run

Studying trends in the inflation-adjusted prices of 30 commodities, David Jacks finds that prices of both energy and non-energy commodities overall have been rising since 1950. He also uncovers a pattern of super-cycles -- decades in which prices exceed their long-run trends because of unusually strong demand. In fact, half of the commodities in his sample are in the midst of such super-cycles, with prices having begun to rise above trend somewhere between 1994 and 1999. There also have been periods of boom and bust in prices over the long run – he analyzes 160 years of data -- especially during periods of freely floating nominal exchange rates, and particularly over the past 40 years.

29 April 2013

A Chinese Experiment Suggests that Working from Home Works

Nicholas Bloom, James Liang, John Roberts, and Zhichun Jenny Ying analyze the results of an experiment in which call center employees of a large travel agency in China were randomly assigned to work either from home or in the office for a period of nine months. They find that working at home was associated with a 13 percent increase in performance: about 9 percent from taking fewer breaks and sick-days and 4 percent from handling more calls because of having a quieter working environment. When the company later rolled-out the work at home option to all employees, more than half switched to it, and productivity gains nearly doubled to 22 percent.

26 April 2013

The Relationship between House Prices, Collateral, and Self-Employment

Manuel Adelino, Antoinette Schoar, and Felipe Severino find that areas that experienced stronger increases in housing prices between 2002 and 2007, before the financial crisis of 2008, saw employment in small businesses grow more than employment within large firms in the same industries. This small-business employment growth was especially strong in industries that need little startup capital and thus can be financed more easily by the use of increased housing collateral.

25 April 2013

How Information Affects Preferences for Redistribution

Ilyana Kuziemko, Michael Norton, Emmanuel Saez, and Stefanie Stantcheva analyze about 5,000 online survey responses from individuals who had received information about U.S. income inequality, the link between top income tax rates and economic growth, and the estate tax. They find that receiving that information has an effect on whether survey respondents view inequality as an important problem, but it does not significantly change their views about policy and redistribution. The exception is informing survey respondents that the estate tax affects only the very richest families: that has a large effect on support for the estate tax.

24 April 2013

Sticky Prices Are Costly

After merging confidential micro-data underlying the BLS Producer Price Index with stock price data for individual firms from NYSE Trade and Quote, Yuriy Gorodnichenko and Michael Weber find that the premium for holding the portfolio populated by firms with the stickiest prices relative to the portfolio populated by firms with the most flexible prices is up to 4 percent per year, even after controlling for standard risk factors. They then calculate the response of returns for firms with different frequencies of price adjustment over a narrow time window around press releases of the Federal Open Market Committee, signaling changes in the Federal Funds rate, and find that returns for firms with stickier prices exhibit greater volatility after monetary shocks than returns of firms with more flexible prices.

23 April 2013

Banks' Exposure to Interest Rate Risk and the Transmission of Monetary Policy

When a bank borrows short term but lends long term at fixed rates, any increase in the short-term interest rate reduces its cash flows and increases its leverage. When issuing equity is expensive, the bank is likely to reduce lending in order to offset this rise in leverage. Augustin Landier, David Sraer, and David Thesmar use quarterly bank holding company data on banks with more than $1bn of total assets covering 1986 to 2011 to measure the “income gap” of each bank -- the difference between the dollar amount of the banks' assets that re-price or mature within a year and the dollar amount of liabilities that re-price or mature within a year. They find that banks do not fully hedge their interest rate exposure. Quantitatively, a 100-basis point increase in the Fed funds rate induces a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile.

22 April 2013

Responding to Population Aging

How can the consequences of population aging in industrialized countries be mitigated? Edgar Vogel, Alexander Ludwig, and Axel Börsch-Supan find that increasing the retirement age would raise labor market participation of the elderly with little detrimental effect on those already working. They conclude that "labor market policies focusing at the extensive margin (by increasing the retirement age) and adjustments at the education margin" are the key to mitigating the potentially adverse effects of demographic change.
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