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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Multiple versus Single Banking Relationships: Theory and Evidence
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00243
Enrica Detragiache, Paolo Garella, Luigi Guiso
A theory of the optimal number of banking relationships is developed and tested using matched bank‐firm data. According to the theory, relationship banks may be unable to continue funding profitable projects owing to internal problems and a firm may thus have to refinance from nonrelationship banks. The latter, however, face an adverse selection problem, as they do not know the quality of the project, and may refuse to lend. In these circumstances, multiple banking can reduce the probability of an early liquidation of the project. The empirical evidence supports the predictions of the model.
Asset Market Participation and Portfolio Choice over the Life‐Cycle
Published: 01/20/2017 | DOI: 10.1111/jofi.12484
ANDREAS FAGERENG, CHARLES GOTTLIEB, LUIGI GUISO
Using error‐free data on life‐cycle portfolio allocations of a large sample of Norwegian households, we document a double adjustment as households age: a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement. When structurally estimating an extended life‐cycle model, the parameter combination that best fits the data is one with a relatively large risk aversion, a small per‐period participation cost, and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in Norway.
Trusting the Stock Market
Published: 11/11/2008 | DOI: 10.1111/j.1540-6261.2008.01408.x
LUIGI GUISO, PAOLA SAPIENZA, LUIGI ZINGALES
We study the effect that a general lack of trust can have on stock market participation. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function of the objective characteristics of the stocks and the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. In Dutch and Italian micro data, as well as in cross‐country data, we find evidence consistent with lack of trust being an important factor in explaining the limited participation puzzle.
The Determinants of Attitudes toward Strategic Default on Mortgages
Published: 03/19/2013 | DOI: 10.1111/jofi.12044
LUIGI GUISO, PAOLA SAPIENZA, LUIGI ZINGALES
We use survey data to measure households’ propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases in both the absolute and the relative size of the home‐equity shortfall. Our evidence suggests that this willingness is affected by both pecuniary and non‐pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.