We show that social changes, like the success of role models, affects household financial decisions. Specifically, minorities underinvest in equity, which contributes to the widening racial wealth gap. But the election of President Obama in 2008, who is a role model from minorities, is a...

This study examines the stock market entry and exit decisions of U.S. households. We find that around 25% of households enter or exit from their non-retirement investment accounts biennially. Cross-sectional and time-series tests indicate that income risk affects equity ownership turnover. A...

We investigate the impact of local agglomeration economies on household portfolio choice. Using detailed location and employment data from two U.S. household surveys, we document that individuals who work in locally agglomerated industries are more likely to invest in risky assets. This pattern...

Based on the 10-K listings of public firms, we identify economic connections among U.S. states, which lead to excess comovement in returns and liquidity of firms headquartered in connected states. The economic connections create spillover effects whereby the economy of a state affects its...

This paper extends the traditional life-cycle hypothesis to allow for rewards from consumption and savings. In the new model, the utility function depends both on consumption and savings, resulting in differing marginal propensities to consume (DMPC) from current income, current wealth, and...

We propose a novel human capital model that decomposes aggregate income risk into high- and low-income risk. We find that high-income risk is priced, while low-income risk is insignificant. The high-income factor alone explains 77% of the cross-sectional variation in the twenty-five size and...

This study examines whether local stock returns vary with local business cycles in a predictable manner. Our key conjecture is that local stock prices would decline and the average future returns would rise during local recessions as local risk aversion increases and local risk sharing abilities...

The recent behavioral literature has shown that individual investors hold concentrated portfolios, trade excessively, and exhibit a preference for local stocks. These results are puzzling because in all three instances portfolio distortions could reflect either an informational advantage or...

We examine whether grit affects individuals' preferences and trading decisions. Grit is the sustained effort toward a goal despite setbacks. It is malleable and distinct from the Big Five personality traits. Using experiments formalized in prospect theory, we find that grit reduces loss...

We investigate whether the adverse effects of investors' behavioral biases extend beyond the domain of financial markets to the broad macro-economy. Focusing on the income risk-sharing role of financial markets, we find that risk-sharing is higher (more than double) in U.S. states where...