The Journal of Finance

The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.

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Search results: 2.

Foreclosure Contagion and the Neighborhood Spillover Effects of Mortgage Defaults

Published: 05/31/2019   |   DOI: 10.1111/jofi.12821

ARPIT GUPTA

In this paper, I identify shocks to interest rates resulting from two administrative details in adjustable‐rate mortgage contract terms: the choice of financial index and the choice of lookback period. I find that a 1 percentage point increase in interest rate at the time of adjustable‐rate mortgage (ARM) reset results in a 2.5 percentage increase in the probability of foreclosure in the following year, and that each foreclosure filing leads to an additional 0.3 to 0.6 completed foreclosures within a 0.10‐mile radius. In explaining this result, I emphasize price effects, bank‐supply responses, and borrower responses arising from peer effects.


Valuing Private Equity Investments Strip by Strip

Published: 08/09/2021   |   DOI: 10.1111/jofi.13073

ARPIT GUPTA, STIJN VAN NIEUWERBURGH

We propose a new valuation method for private equity (PE) investments. It constructs a replicating portfolio using cash flows on listed equity and fixed‐income instruments (strips). It then values the strips using an asset pricing model that captures the risk in the cross‐section of bonds and equity factors. The method delivers a risk‐adjusted profit on each PE investment and a time series for the expected return on each fund category. We find negative risk‐adjusted profits for the average PE fund, with substantial heterogeneity and some persistence in the performance. Expected returns and risk‐adjusted profit decline in the later part of the sample.