Pub Date : 2026-02-01Epub Date: 2025-11-21DOI: 10.1016/j.jfineco.2025.104203
Zhengyang Jiang , Hanno Lustig , Stijn Van Nieuwerburgh , Mindy Z. Xiaolan
In the presence of aggregate risk, governments face a trade-off between insuring taxpayers or bondholders. The literature assumes that the government can finance deficits at the risk-free rate, protecting bondholders at the expense of taxpayers. We characterize the implications of this assumption on the surplus process. Under reasonable debt dynamics, counter-cyclical debt issuance that protects taxpayers against adverse macro-economic shocks is limited in time and scope, and comes at the expense of higher long-run risk. We find that the restrictions imposed by risk-free debt are rejected in U.S. surplus data, especially after the GFC. Taxpayers have been protected at the expense of bondholders.
{"title":"Manufacturing risk-free government debt","authors":"Zhengyang Jiang , Hanno Lustig , Stijn Van Nieuwerburgh , Mindy Z. Xiaolan","doi":"10.1016/j.jfineco.2025.104203","DOIUrl":"10.1016/j.jfineco.2025.104203","url":null,"abstract":"<div><div>In the presence of aggregate risk, governments face a trade-off between insuring taxpayers or bondholders. The literature assumes that the government can finance deficits at the risk-free rate, protecting bondholders at the expense of taxpayers. We characterize the implications of this assumption on the surplus process. Under reasonable debt dynamics, counter-cyclical debt issuance that protects taxpayers against adverse macro-economic shocks is limited in time and scope, and comes at the expense of higher long-run risk. We find that the restrictions imposed by risk-free debt are rejected in U.S. surplus data, especially after the GFC. Taxpayers have been protected at the expense of bondholders.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"176 ","pages":"Article 104203"},"PeriodicalIF":10.4,"publicationDate":"2026-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145575671","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-02-01Epub Date: 2025-11-21DOI: 10.1016/j.jfineco.2025.104205
Pawel Janas
I examine the effects of public debt on municipal services and real outcomes during financial crises using a unique archival dataset of U.S. cities from 1924 to 1943. Unlike today’s countercyclical fiscal policies, the Great Depression provides a rare setting to observe fiscal shocks without substantial intergovernmental or Federal Reserve support. My findings show that financial market frictions – especially the need to refinance debt – led cities to sharply cut expenditures, particularly on capital projects and police services. As urban development halted during the Depression, cities with high pre-crisis debt levels faced significant austerity pressures, a decline in population growth, a rise in crime, and a departure of skilled public servants from municipal governments.
{"title":"Public goods under financial distress","authors":"Pawel Janas","doi":"10.1016/j.jfineco.2025.104205","DOIUrl":"10.1016/j.jfineco.2025.104205","url":null,"abstract":"<div><div>I examine the effects of public debt on municipal services and real outcomes during financial crises using a unique archival dataset of U.S. cities from 1924 to 1943. Unlike today’s countercyclical fiscal policies, the Great Depression provides a rare setting to observe fiscal shocks without substantial intergovernmental or Federal Reserve support. My findings show that financial market frictions – especially the need to refinance debt – led cities to sharply cut expenditures, particularly on capital projects and police services. As urban development halted during the Depression, cities with high pre-crisis debt levels faced significant austerity pressures, a decline in population growth, a rise in crime, and a departure of skilled public servants from municipal governments.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"176 ","pages":"Article 104205"},"PeriodicalIF":10.4,"publicationDate":"2026-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145575608","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-02-01Epub Date: 2025-11-23DOI: 10.1016/j.jfineco.2025.104216
Ulf Axelson, Igor Makarov
Entrepreneurs typically seek financing in decentralized markets, where they approach investors sequentially. We develop a model of sequential capital markets with privately informed investors. The sequential market creates a dynamic adverse selection externality that leads to overinvestment and excessive rents to intermediaries, even as the number of competing investors becomes arbitrary large. The resulting rents lead to excessive entry of investors and insufficient entry of entrepreneurs. Moving to a centralized market structure or reducing transparency restores competitiveness but may harm efficiency. The model also explains how even a small skill advantage for an investor can lead to preferential deal flow and outsized returns.
{"title":"Sequential credit markets","authors":"Ulf Axelson, Igor Makarov","doi":"10.1016/j.jfineco.2025.104216","DOIUrl":"10.1016/j.jfineco.2025.104216","url":null,"abstract":"<div><div>Entrepreneurs typically seek financing in decentralized markets, where they approach investors sequentially. We develop a model of sequential capital markets with privately informed investors. The sequential market creates a dynamic adverse selection externality that leads to overinvestment and excessive rents to intermediaries, even as the number of competing investors becomes arbitrary large. The resulting rents lead to excessive entry of investors and insufficient entry of entrepreneurs. Moving to a centralized market structure or reducing transparency restores competitiveness but may harm efficiency. The model also explains how even a small skill advantage for an investor can lead to preferential deal flow and outsized returns.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"176 ","pages":"Article 104216"},"PeriodicalIF":10.4,"publicationDate":"2026-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145583783","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-11-12DOI: 10.1016/j.jfineco.2025.104202
Francesco D’Acunto , Pulak Ghosh , Alberto G. Rossi
We study the nature and effects of cultural biases in choice under risk and uncertainty by comparing peer-to-peer loans the same individuals (lenders) make alone and after observing robo-advised suggestions. When unassisted, lenders are more likely to choose co-ethnic borrowers, facing 8% higher defaults and 7.3pp lower returns. Robo-advising does not affect diversification but reduces lending to high-risk co-ethnic borrowers. Lenders in locations with high inter-ethnic animus drive the results, even when borrowers reside elsewhere. Biased beliefs explain these results better than a conscious taste for discrimination: lenders rarely override robo-advised matches to ethnicities they discriminated against when unassisted.
{"title":"How costly are cultural biases? Evidence from FinTech","authors":"Francesco D’Acunto , Pulak Ghosh , Alberto G. Rossi","doi":"10.1016/j.jfineco.2025.104202","DOIUrl":"10.1016/j.jfineco.2025.104202","url":null,"abstract":"<div><div>We study the nature and effects of cultural biases in choice under risk and uncertainty by comparing peer-to-peer loans the same individuals (<em>lenders</em>) make alone and after observing robo-advised suggestions. When unassisted, lenders are more likely to choose co-ethnic borrowers, facing 8% higher defaults and 7.3pp lower returns. Robo-advising does not affect diversification but reduces lending to high-risk co-ethnic borrowers. Lenders in locations with high inter-ethnic animus drive the results, even when borrowers reside elsewhere. Biased beliefs explain these results better than a conscious taste for discrimination: lenders rarely override robo-advised matches to ethnicities they discriminated against when unassisted.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104202"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145509513","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-10-31DOI: 10.1016/j.jfineco.2025.104191
Christian Heyerdahl-Larsen , Philipp Illeditsch
Disagreement about macroeconomic fundamentals accounts for only part of the disagreement about future interest rates, creating a “disagreement correlation” puzzle. This puzzle arises because standard equilibrium models with belief differences predict a strong link between asset return disagreement and fundamental disagreement, a link not supported by the data. We address this puzzle by introducing a model where disagreement about future demand for savings—driven by disagreement over the prevalence of patient versus impatient investors in the economy—generates asset return disagreement. Our mechanism produces stochastic yield volatility, time-varying bond risk premia, and an upward-sloping yield curve. Empirically, we construct a proxy for demand disagreement by isolating the component of yield disagreement unrelated to disagreement about macro-fundamentals. This proxy is positively related to yields and their volatilities, and predicts future bond risk premia, consistent with the predictions of our demand disagreement model.
{"title":"Demand disagreement","authors":"Christian Heyerdahl-Larsen , Philipp Illeditsch","doi":"10.1016/j.jfineco.2025.104191","DOIUrl":"10.1016/j.jfineco.2025.104191","url":null,"abstract":"<div><div>Disagreement about macroeconomic fundamentals accounts for only part of the disagreement about future interest rates, creating a “disagreement correlation” puzzle. This puzzle arises because standard equilibrium models with belief differences predict a strong link between asset return disagreement and fundamental disagreement, a link not supported by the data. We address this puzzle by introducing a model where disagreement about future demand for savings—driven by disagreement over the prevalence of patient versus impatient investors in the economy—generates asset return disagreement. Our mechanism produces stochastic yield volatility, time-varying bond risk premia, and an upward-sloping yield curve. Empirically, we construct a proxy for demand disagreement by isolating the component of yield disagreement unrelated to disagreement about macro-fundamentals. This proxy is positively related to yields and their volatilities, and predicts future bond risk premia, consistent with the predictions of our demand disagreement model.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104191"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145420510","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-11-08DOI: 10.1016/j.jfineco.2025.104190
Quentin Vandeweyer , Minghao Yang , Constantine Yannelis
This paper studies the transmission of monetary policy to the stock market through investors’ discount factors. To isolate this channel, we investigate the effect of US monetary policy surprises on the ratio of prices of the same stock listed simultaneously in Hong Kong and Mainland China. We identify a strong discount rate channel driven exclusively by cycle-amplifying surprises, defined as rate cuts during easing cycles and surprise hikes during tightening cycles. A 100 basis point of such cycle-amplifying surprise induces a 30 basis point change in the price ratio within five days.
{"title":"Discount factors and monetary policy: Evidence from dual-listed stocks","authors":"Quentin Vandeweyer , Minghao Yang , Constantine Yannelis","doi":"10.1016/j.jfineco.2025.104190","DOIUrl":"10.1016/j.jfineco.2025.104190","url":null,"abstract":"<div><div>This paper studies the transmission of monetary policy to the stock market through investors’ discount factors. To isolate this channel, we investigate the effect of US monetary policy surprises on the ratio of prices of the same stock listed simultaneously in Hong Kong and Mainland China. We identify a strong discount rate channel driven exclusively by cycle-amplifying surprises, defined as rate cuts during easing cycles and surprise hikes during tightening cycles. A 100 basis point of such cycle-amplifying surprise induces a 30 basis point change in the price ratio within five days.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104190"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145468047","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-10-28DOI: 10.1016/j.jfineco.2025.104172
Haoyang Liu , Christopher Palmer
We document implicit extrapolation in investment decision-making that exceeds the extrapolation inferable from stated expectations. Locally experienced returns predict individual real-estate investment decisions even conditional on an investor’s forecasted home-price growth and risk aversion. Moreover, estimates of this experience effect on investment are larger than implied by the combined effect of past returns on stated expectations and stated expectations on investment. We demonstrate that heterogeneous forecast confidence helps explain why many investors rely on past returns over their survey-elicited forecasts. As their rationale, such survey respondents frequently cite intentional extrapolation or a lack of confidence in other belief factors.
{"title":"Implicit extrapolation and the beliefs channel of investment demand","authors":"Haoyang Liu , Christopher Palmer","doi":"10.1016/j.jfineco.2025.104172","DOIUrl":"10.1016/j.jfineco.2025.104172","url":null,"abstract":"<div><div>We document implicit extrapolation in investment decision-making that exceeds the extrapolation inferable from stated expectations. Locally experienced returns predict individual real-estate investment decisions even conditional on an investor’s forecasted home-price growth and risk aversion. Moreover, estimates of this experience effect on investment are larger than implied by the combined effect of past returns on stated expectations and stated expectations on investment. We demonstrate that heterogeneous forecast confidence helps explain why many investors rely on past returns over their survey-elicited forecasts. As their rationale, such survey respondents frequently cite intentional extrapolation or a lack of confidence in other belief factors.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104172"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145371061","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-11-01DOI: 10.1016/j.jfineco.2025.104189
Mengyu Wang , Jeffrey Wurgler , Hong Zhang
Policy uncertainty can undermine the power of government subsidies to stimulate environmentally friendly research and development. We show that Chinese firms’ green R&D falls as the uncertainty of environmental subsidies rises: Exogenous, weather-driven air pollution variability induces subsidies to fluctuate, and firms in areas with high weather-driven subsidy variability undertake less green R&D and hire fewer technical employees, controlling for the average level of subsidies. Heavy emitters and environmental technology firms are more affected. The results also illustrate how policy uncertainty can arise when policymakers are influenced by conditions that are salient but with causes that are difficult to disentangle.
{"title":"Policy uncertainty reduces green innovation","authors":"Mengyu Wang , Jeffrey Wurgler , Hong Zhang","doi":"10.1016/j.jfineco.2025.104189","DOIUrl":"10.1016/j.jfineco.2025.104189","url":null,"abstract":"<div><div>Policy uncertainty can undermine the power of government subsidies to stimulate environmentally friendly research and development. We show that Chinese firms’ green R&D falls as the uncertainty of environmental subsidies rises: Exogenous, weather-driven air pollution variability induces subsidies to fluctuate, and firms in areas with high weather-driven subsidy variability undertake less green R&D and hire fewer technical employees, controlling for the average level of subsidies. Heavy emitters and environmental technology firms are more affected. The results also illustrate how policy uncertainty can arise when policymakers are influenced by conditions that are salient but with causes that are difficult to disentangle.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104189"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145420509","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-11-01DOI: 10.1016/j.jfineco.2025.104167
Joshua Blonz , Brigitte Roth Tran , Erin Troland
We use individual-level credit data to study how recent declines in Appalachian coal mining affected household finances between 2011 and 2018. Using exogenous variation in electricity sector demand for coal, we find declines in coal demand decreased credit scores and increased financial distress within two years of coal shocks. These effects cannot be explained solely by job losses in coal mine worker households. Credit score declines and financial distress were largest among older individuals and people with lower-middle credit scores. Our results suggest the transition away from fossil fuels may impose meaningful costs on other fossil fuel extraction communities.
{"title":"The canary in the coal decline: Appalachian household finance and the transition from fossil fuels","authors":"Joshua Blonz , Brigitte Roth Tran , Erin Troland","doi":"10.1016/j.jfineco.2025.104167","DOIUrl":"10.1016/j.jfineco.2025.104167","url":null,"abstract":"<div><div>We use individual-level credit data to study how recent declines in Appalachian coal mining affected household finances between 2011 and 2018. Using exogenous variation in electricity sector demand for coal, we find declines in coal demand decreased credit scores and increased financial distress within two years of coal shocks. These effects cannot be explained solely by job losses in coal mine worker households. Credit score declines and financial distress were largest among older individuals and people with lower-middle credit scores. Our results suggest the transition away from fossil fuels may impose meaningful costs on other fossil fuel extraction communities.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104167"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145420507","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2026-01-01Epub Date: 2025-11-01DOI: 10.1016/j.jfineco.2025.104188
Magnus Dahlquist , Markus Ibert
We study the equity, cash, and corporate bond risk premium expectations of asset managers, investment consultants, wealth advisors, public pension funds, and professional forecasters. Subjective risk premia vary one-to-one with objective risk premia that are available in real time and countercyclical. Despite their significant time-series variation, several subjective equity premia vary more in the cross-section of institutions than in the time series. This heterogeneity persists both over time and across asset classes. We tie the heterogeneity in subjective equity return expectations to heterogeneous expectations about long-term equity valuations: some institutions believe that the price–earnings ratio behaves like a random walk, whereas others believe in varying degrees of mean reversion.
{"title":"Institutions’ return expectations across assets and time","authors":"Magnus Dahlquist , Markus Ibert","doi":"10.1016/j.jfineco.2025.104188","DOIUrl":"10.1016/j.jfineco.2025.104188","url":null,"abstract":"<div><div>We study the equity, cash, and corporate bond risk premium expectations of asset managers, investment consultants, wealth advisors, public pension funds, and professional forecasters. Subjective risk premia vary one-to-one with objective risk premia that are available in real time and countercyclical. Despite their significant time-series variation, several subjective equity premia vary more in the cross-section of institutions than in the time series. This heterogeneity persists both over time and across asset classes. We tie the heterogeneity in subjective equity return expectations to heterogeneous expectations about long-term equity valuations: some institutions believe that the price–earnings ratio behaves like a random walk, whereas others believe in varying degrees of mean reversion.</div></div>","PeriodicalId":51346,"journal":{"name":"Journal of Financial Economics","volume":"175 ","pages":"Article 104188"},"PeriodicalIF":10.4,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145420508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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