Person:

Ranish, Benjamin

Chapter one shows that US households with high unconditional and cyclical labor income risk are more leveraged and allocate a greater share of their financial assets to stocks. I use self-reported risk preferences to show that rational sorting of risk tolerant workers into risky employment is responsible for this otherwise puzzling result. With risk preferences accounted for, I find evidence that households with greater permanent income variance reduce leverage and stock allocations to an extent consistent with theory. However, household portfolios and employment selection do not respond significantly to any of the other three forms of labor income risk I measure: disaster risk, permanent income cyclicality, and permanent income variance cyclicality. Chapter two reports evidence that individual investors in Indian equities hold better performing portfolios as they become more experienced in the equity market. Experienced investors tilt their portfolios profitably towards value stocks and stocks with low turnover, but these tilts do not fully explain their performance. Experienced investors also tend to have lower turnover and disposition bias. These behaviors, as well as underdiversification, diminish when investors experience poor returns resulting from them, consistent with models of reinforcement learning. Furthermore, Indian stocks held by experienced, well diversified, low-turnover and low-disposition-bias investors deliver higher average returns even controlling for a standard set of stock-level characteristics. Chapter three shows that news reflected by industry stock returns is only gradually incorporated into stock prices in other countries. Information links between cross-border portfolios play a significant role in explaining variation in the speed of this incorporation; responses to industry news are rapid across borders where portfolios share more crosslistings, equity analyst coverage, and a greater common equity investor base. The drift in returns following cross-border industry news has halved in the past 25 years. About half of this change relates to a growth in information links and reductions in expropriations risks facing foreign investors. A simple long-short trading strategy designed to exploit gradual diffusion of industry news across borders appears profitable, but is unlikely to yield returns as high as the 8 to 9 percent annual rate the strategy has returned historically.

Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that both years of investment experience and feedback from investment returns have significant effects on investor behavior, favored stock styles, and performance. We identify two channels of feedback: performance relative to the market, and the directly experienced returns to behavior and styles of stock. Both of these vary across investors at a point in time because investors are imperfectly diversified and receive idiosyncratic returns. We find that experienced investors generally behave in a manner more consistent with the recommendations of finance theory, although this tendency is weakened by strong investment performance. High trading profits increase turnover, while high returns to equity styles have a short-term negative and a longer-term positive effect on investors' style demands, possibly reflecting the offsetting effects of disposition bias and style chasing. We document high returns on a portfolio of stocks held by experienced investors, and on individual Indian stocks with an experienced and low-turnover investor base.

To understand the effects of regulation on mortgage risk, it is instructive to track the history of regulatory changes in a country rather than to rely entirely on cross- country evidence that can be contaminated by unobserved heterogeneity. However, in developed countries with fairly stable systems of financial regulation, it is difficult to track these effects. We employ loan-level data on over a million loans disbursed in India over the 1995 to 2010 period to understand how fast-changing regulation impacted mortgage lending and risk. We use cross-sectional differences in the time- series variation of delinquency rates, conditional on initial interest rates, to detect the effects of regulation on mortgage delinquencies.

We employ loan-level data on over a million loans disbursed in India between 1995 and 2010 to understand how fast-changing regulation impacted mortgage lending and risk. Our paper uses changes in regulatory treatment discontinuities associated with loan size and leverage to detect regulation-induced loan delinquencies. We also find that an acceleration in the classification of assets as nonperforming resulted in substantially lower delinquency probabilities and losses given delinquency.