The Journal of Finance

Johannes Stroebel: Winner of the 2023 Fischer Black Prize

Published: 08/01/2023   |   DOI: 10.1111/jofi.13269

STIJN VAN NIEUWERBURGH

Out‐of‐Town Home Buyers and City Welfare

Published: 05/22/2021   |   DOI: 10.1111/jofi.13057

JACK FAVILUKIS, STIJN VAN NIEUWERBURGH

Many cities have attracted a flurry of out‐of‐town (OOT) home buyers. Such capital inflows affect house prices, rents, construction, labor income, wealth, and ultimately welfare. We develop an equilibrium model to quantify the welfare effects of OOT home buyers for the typical U.S. metropolitan area. When OOT investors buy 10% of the housing in the city center and 5% in the suburbs, welfare among residents falls by 0.61% in consumption‐equivalent units. House prices and rents rise substantially, resulting in welfare gains for owners and losses for renters. Policies that tax OOT buyers or mandate renting out vacant property mitigate welfare losses.

Information Immobility and the Home Bias Puzzle

Published: 05/20/2009   |   DOI: 10.1111/j.1540-6261.2009.01462.x

STIJN VAN NIEUWERBURGH, LAURA VELDKAMP

Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why does global information access not eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly, even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know. Learning amplifies information asymmetry. The model matches patterns of local and industry bias, foreign investments, portfolio outperformance, and asset prices. Finally, we propose new avenues for empirical research.

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.

Time‐Varying Fund Manager Skill

Published: 07/26/2013   |   DOI: 10.1111/jofi.12084

MARCIN KACPERCZYK, STIJN VAN NIEUWERBURGH, LAURA VELDKAMP

We propose a new definition of skill as general cognitive ability to pick stocks or time the market. We find evidence for stock picking in booms and market timing in recessions. Moreover, the same fund managers that pick stocks well in expansions also time the market well in recessions. These fund managers significantly outperform other funds and passive benchmarks. Our results suggest a new measure of managerial ability that weighs a fund's market timing more in recessions and stock picking more in booms. The measure displays more persistence than either market timing or stock picking alone and predicts fund performance.

Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective

Published: 05/03/2005   |   DOI: 10.1111/j.1540-6261.2005.00759.x

HANNO N. LUSTIG, STIJN G. VAN NIEUWERBURGH

In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the conditional market price of risk. Using aggregate data for the United States, we find that a decrease in the ratio of housing wealth to human wealth predicts higher returns on stocks. Conditional on this ratio, the covariance of returns with aggregate risk factors explains 80% of the cross‐sectional variation in annual size and book‐to‐market portfolio returns.

Health and Mortality Delta: Assessing the Welfare Cost of Household Insurance Choice

Published: 03/18/2015   |   DOI: 10.1111/jofi.12273

RALPH S.J. KOIJEN, STIJN NIEUWERBURGH, MOTOHIRO YOGO

We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life‐cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long‐term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.

The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Public Care Aversion from Bequest Motives

Published: 03/21/2011   |   DOI: 10.1111/j.1540-6261.2010.01641.x

JOHN AMERIKS, ANDREW CAPLIN, STEVEN LAUFER, STIJN VAN NIEUWERBURGH

The “annuity puzzle,” conveying the apparently low interest of retirees in longevity insurance, is central to household finance. Two possible explanations are “public care aversion” (PCA), retiree aversion to simultaneously running out of wealth and being in need of long‐term care, and an intentional bequest motive. To disentangle the relative importance of PCA and bequest motive, we estimate a structural model of the retirement phase using a novel survey instrument that includes hypothetical questions. We identify PCA as very significant and find bequest motives that spread deep into the middle class. Our results highlight potential interest in annuities that make allowance for long‐term care expenses.

Financial Fragility with SAM?

Published: 12/03/2020   |   DOI: 10.1111/jofi.12992

DANIEL L. GREENWALD, TIM LANDVOIGT, STIJN VAN NIEUWERBURGH

Shared appreciation mortgages (SAMs) feature mortgage payments that adjust with house prices. They are designed to stave off borrower default by providing payment relief when house prices fall. Some argue that SAMs may help prevent the next foreclosure crisis. However, home owners' gains from payment relief are mortgage lenders' losses. A general equilibrium model in which financial intermediaries channel savings from saver to borrower households shows that indexation of mortgage payments to aggregate house prices increases financial fragility, reduces risk‐sharing, and leads to expensive financial sector bailouts. In contrast, indexation to local house prices reduces financial fragility and improves risk‐sharing.