Research articles for the 2021-04-24

Do High Schools Choose Financial Education Policies Based on Their Neighbors?
Luedtke, Allison,Urban, Carly
Financial Education courses required for high school graduation make a difference in students' future financial lives. Given that schools exercise local control, there are a variety of types of courses offered and required by US high schools. It remains unclear why and where this variation exists. Using a novel data set of unique high school personal finance course offerings and requirements paired with distances between high schools in the US, we approximate a network of nearby peer high schools. We use this network of peer schools to measure the potential influence of nearby schools on an individual high school's decision to offer financial education courses. We find that high schools are more likely to require or offer financial education courses similar to those of their peer schools. Having an additional peer that incorporates financial education into their curriculum makes it more likely a high school will change their curriculum to do the same. This is true across types of courses: required standalone courses, required courses that incorporate but do not solely focus on personal finance, and standalone electives. The results indicate that schools' nearby peers are related to what types of services to offer their students, and these networks are more predictive than economic or demographic characteristics of the school in determining personal finance course requirements. Local networks can potentially provide momentum in expanding access to financial education.

Financial Advice and Household Financial Portfolios
Brown, Sarah,Bucciol, Alessandro,Montagnoli, Alberto,Taylor, Karl
We investigate the role of financial advice in shaping the composition of household portfolios in Great Britain. Advice is associated with a reallocation of wealth away from real estate and towards bonds and stocks, especially when households seek financial advice "for investments". Having a consultation with a stockbroker has a particularly large effect on the portfolio share in stocks. However, even free financial advice has a positive effect on the shares in bonds and stocks, compared to not receiving advice. Finally, we find a positive association between alternative measures of portfolio risk and the composition of the portfolio, whilst accounting for financial advice.

Jumps and Liquidity in the U.S. Stock Market
Goel, Rohit,Malik, Sheheryar
We use a new framework to analyze the liquidity trends in the US equity markets, based on the intra-day price trend. The analysis suggests that the proportion of daily price variation explained by jumps (either small or large) is at a historical low. Furthermore while small jumps (which are generally liquidity related) are less common, but they increase significantly during the stress events. Overall, these findings suggest that liquidity has not materially deteriorated in the U.S. equity market.

One Size Fits All? Monetary Policy and Asymmetric Household Debt Cycles in U.S. States
Albuquerque, Bruno
I investigate the nonlinear effects of monetary policy through differences in household debt across U.S. states. After constructing a novel indicator of inflation for the states, I compute state-specific monetary policy stances as deviations from an aggregate Taylor rule. I find that the effectiveness of monetary policy is curtailed during periods of large household debt imbalances. Moreover, a common U.S. monetary policy does not fit all; it may have asymmetric effects on the economic performance across states, particularly at times of high dispersion in the household debt imbalances, as it may have been the case around the Great Recession.

Predicting the Cross-Section of Project Values
Hommel, Nicolas,Landier, Augustin,Thesmar, David
To compute the value of a project̢۪s equity, the textbook recommendation is to use the Present Value formula of expected cash-flows, with a discount rate based on the CAPM. Using listed firms as our testing ground, and analyst forecasts as measures of expected cash-flows, we compare various valuation techniques. These different methods produce a predicted equity value, that is a function of public firm-level information at a given point in time, except for the price itself. We rank valuation methods using the cross-sectional mean squared difference between predicted and observed valuations of individual listed firms. We find that discounting with an imputed Internal Rate of Return, computed on comparable firms, obtains the best results in the validation sample. Models based on expected returns, or a simple multiple approach, perform poorly. We also propose a simple technique to deal with time-varying expected returns.

Risk Taking in the Context of Financial Advice: The Issue of Gender Identity
Monne, Jerome,Rutterford, Janette,Sotiropoulos, Dimitris
We test a gender threat hypothesis whereby having a financial advisor of the opposite gender results in gender stereotypical risk attitudes. We employ a unique dataset of 1,621 advised UK investors, combined with information on the gender of their financial advisors. Confirming the hypothesis, our results show that men advised by a woman take more risk than when advised by a man. Women advised by a man adopt a more cautious approach than when advised by a woman. When the gender threat is alleviated, we found no gender gap in risk-taking.