by Jessica Schultz
This paper explores how people track inflation over their lifetimes while facing tradeoffs between attention and certainty. It first employs a flexible modification of the Recursive Least Squares Learning approach from Malmendier and Nagel (MN) (2016) to find that households place weight on each inflation observation in a hump-shaped pattern over age when using past observations to set expectations about the future. This finding departs from MN, which models a strictly increasing weighting scheme with age. This paper then uses these findings to motivate a theory of Rational Inattention (RI) in inflation: as households age and accumulate wealth, their knowledge of the inflation rate becomes more important in their financial decisions–so they pay more attention to inflation. Consequently, as they decumulate wealth during their retirement, they have less reason to track inflation as accurately.
This paper subsequently formalizes this theory in a two-period RI model in which inflation-driven uncertainty in the interest rate between a working period and a retirement period can be reduced at a cost; this reduction in uncertainty occurs through observing an endogenously chosen signal that is correlated with the interest rate. It finds that as wealth increases before retirement, the optimal choice of signal precision increases as well. These findings help explain the hump-shaped weighting scheme for inflation observations in the empirical section, assuming changes in these weights over age are related in part to changes in household wealth. Ultimately, these findings suggest that monetary policy that focuses on long-term inflation stability or accounts for this heterogeneity may be most effective in anchoring consumer inflation expectations and increasing consumer welfare.
Advisors: Professor Francesco Bianchi, Professor Michelle Connolly | JEL Codes: E2, E21, E31
Informing the Investor: A Comparative Analysis of the Importance of Pre-Initial Public Offering (IPO) Information on Stock Performance
by Paul Snyder
This paper answers which available information about the company, macroeconomic and market environment, regulatory constraints, and offering before an IPO is most impactful on year-long buy-and-hold abnormal returns and how that changes across time while analyzing the IPO markets of 1999 and 2019. Data was gathered from predominantly company prospectuses and proprietary datasets to select a total of 419 IPOs across two samples and regress abnormal geometric returns against the aforementioned information using multivariate OLS regressions. There are a number of interesting findings. First, certain information or factors that act as signals of stock performance before an IPO that correlate with stock performance change across time. Second, there is evidence that companies abiding by more regulation pre-IPO tend to perform better on the stock market after the fact, particularly with the Sarbanes-Oxley and JOBS Acts. While the direction of causality is unknown, there is now a clear and quantified relationship between IPO regulation requirements and stock performance. Third, there is evidence that the IPO market has become more strong-form efficient when comparing 1999 to 2019.
Advisors: Professor Edward Tower, Professor Grace Kim | JEL Codes: G1, G12, G14
by Cassandra Turk
Housing intervention models intended to revitalize neighborhoods and empower homeowners are frequently observed in cities across the United States. To determine the efficacy of these programs, this study analyzes the effects of a housing intervention on the price of the home and the changes in neighborhood characteristics that may lead to neighborhood stability or instability in the long run, including the home prices, the racial makeup, the median income, and crime rates of the neighborhood. To study these characteristics and how they interact with interventions, I implement a propensity score matching model to reduce variation in unobservable characteristics and to isolate the effect of interventions on the block group characteristics of interest. In addition, I implement a non-parametric kernel regression to allow for the possibility of a non-linear relationship between home prices and home interventions. The results show significant evidence that interventions increase neighborhood home values at the bottom 10th percentile and at the median of each block group, suggesting that housing interventions do serve to increase the quality of the neighborhood. However, there is evidence that these effects taper off after a certain percent of the households in the neighborhood have been intervened upon, reducing the marginal benefit of completing a new housing intervention.
Advisors: Professor Christopher Timmins, Professor Michelle Connolly | JEL Codes: R2, R23, J10
by Mary Wang
Living arrangements of mothers in China significantly impact their annual wages and motherhood wage penalties. I study how the presence of mothers’ parents, or the maternal grandparents, affect mothers’ wages for each child living in the mothers’ households. Existing literature finds that mothers in China not only experience a motherhood wage penalty, but also observe wage impacts from the living arrangements of their family members, such as the paternal and maternal grandparents. Although existing research on motherhood wage penalties references the China Health and Nutrition Survey, I use data from the China Family Panel Studies, the most recent and comprehensive panel survey that reflects the social and economic transformations of contemporary China. To extend and update the analysis of living arrangements on the motherhood wage penalty, I present evidence of the impact of living arrangements on the motherhood wage penalty, distinguishing between the presence of the maternal grandmother, maternal grandfather, and both maternal grandparents. While I find clear evidence that the presence of the maternal grandmother in the household counters the motherhood wage penalty, due to the lack of data on single mothers, I am not able to find conclusive evidence of a difference in the impact of grandparents on the motherhood wage penalty for single mothers compared with married mothers.
Advisor: Professor Peter Arcidiacono, Professor Michelle Connolly | JEL Codes: J12, J16, J21
by Robert Williams
Private equity firms first began acquiring hospitals in the United States during the early 1990s, yet the effects of private equity ownership on patient outcomes and treatment costs are still not clear. Some argue that although private equity firms are adept at improving operating efficiencies and introducing managerial expertise, these cost-cutting measures may come at the expense of patient outcomes.
Because acute myocardial infarctions (AMIs) serve as proxies for patient outcomes and treatment costs, I collect information on 30-day mortality rates and Medicare reimbursements for treatments of AMIs at US Medicare-certified short-term acute care general hospitals from 2014 to 2019. This paper uses fixed effects models to analyze the impact of leveraged buyouts, relative to strategic acquisitions, on patient outcomes. After integrating both hospital and time fixed effects, I find that private equity ownership does not lead to significant changes in Medicare reimbursements or mortality rates for AMI treatments.
Advisors: Professor Ryan McDevitt, Professor Grace Kim, Professor Michelle Connolly | JEL Codes: I0, I110, G340
by Tianjiu Zuo
The broadband market is unique for municipal (government-owned) and cooperative (member-owned) competitors. Their participation, however, raises conflict of interest concerns. Both municipalities and cooperatives are often owners of utility poles that are an essential input for broadband deployment. Internet service providers (ISPs) must lease pole attachment space. While most pole attachment rates are regulated, municipal and cooperative pole owners are exempt by Section 224 of the Telecommunications Act. This paper, therefore, studies the competitive effects of municipal and cooperative ISPs, and the effect of potential entry by municipal and cooperative electric utilities (non-ISPs), on broadband entry and quality. I add to the existing literature by building a dataset of municipal and cooperative non-ISP service areas, designing a method to clean the Federal Communications Commission’s (FCC) broadband data, developing a novel geographic entry threat model, and analyzing municipalities and cooperatives in conjunction. I categorize markets into three types: rural, urban clusters (2,500 to 50,000 people), and urbanized areas (≥ 50,000 people). Looking at Illinois from June 2015 to June 2018, I find that the presence of a municipal ISP lowers the probability of market entry and service quality in urbanized areas. The presence of a cooperative ISP lowers the probability of market entry and service quality in rural areas and urban clusters. The presence of a municipal non-ISP has little to no effect on the probability of market entry or service quality. The presence of a cooperative non-ISP appears to increase the probability of market entry in rural and urbanized areas, but depress service quality in urbanized areas, though these effects could be attributed to bad data.
Advisor: Professor Michelle Connolly | JEL Codes: L32, L41, L96