Research

The Fama-Miller Center is designed to encourage more academic research in finance, a discipline that constantly evolves. The last few decades have brought an explosion of new markets, instruments, and financial institutions. We have seen rapid changes in the nature of and access to information. In this environment, the Fama-Miller Center has become a vital resource.

"We intend to make sure Chicago Booth remains the top global destination for finance researchers," Sunil Kumar, dean of the school, has said. "Finance is one of our core strengths, and we have no intention of resting on our laurels."

Browse working papers from the Fama-Miller Center »

Research activities at the Fama-Miller Center currently focus on the following topics:

The Effects of Refinancing Credit on Housing Investment

Meru Bhanot, Economics PhD Student

In this paper, I seek to understand the determinants of households' housing investment (primarily alterations and renovations), with a focus on the roles of credit supply and neighborhood effects. I estimate a bank-specific credit supply shock and a credit standards shock to refinancing and home purchase credit using national data from 2004-2015. Using BuildFax data on national building permits, I study the effect of the credit supply shock on households' investment, both in home-value enhancing investments (such as renovations and extensions), and in longer term financial investments (such as solar panels). Then, using granular building permit data from Chicago, I show that credit supply shocks spur households to renovate their homes. Furthermore, I demonstrate that housing investment demonstrates spatio-temporal spillover effects across census tracts and block groups. I combine these insights with assessment data on the market value of home improvements to calibrate a structural model that estimate the importance of neighborhood quality in investment decisions.

Real Effects of Banking Productivity
(Branch-level Deposit Productivity Estimation)(Bhue)

Public Pensions and State Government Debt Spreads

Chuck Boyer, Chicago Booth PhD Student

I plan to characterize the relationship between U.S. state government fiscal conditions, pension liabilities, and state government bond yields. My findings will quantify the extent to which governments are already paying for underfunded pensions in the form of higher borrowing costs, and default risk. Moreover, I will explore the political economy of state government debt. Currently, many researchers argue that public pension liabilities are "senior" to bonded debt. However, municipal defaults such as those in Detroit suggest that default is likely to be a more nuanced negotiation process between pensioners and creditors. Using data from municipal bond issues along with data I have already collected on state government balance sheets and political conditions (union membership concentration, for example), I hope to investigate whether or not markets perceive pension liabilities as senior debt, and quantify how that depends on the relative bargaining power of pension holders vs. creditors.

The Rise of Goodwill

Peter Chen, Chicago Booth PhD Student

As a share of total assets, Goodwill rose from less than 5 percent in 1985 to nearly 20 percent in 2015, as shown in Figure 1. This rise is both smooth and pervasive across countries and industries. I argue that this macro trend reflects both firms' increasing reliance on mergers to expand, as well as the rising importance of off-balance sheet characteristics in determining firm value. Then, I document both the time series and the cross-sectional properties of goodwill accumulation, with the goal of understanding how much of aggregate goodwill can be attributed to target firms' off-balance sheet capital, the synergies that arise from the merger, or the gaining of market power. Lastly, I plan to quantify the impact on aggregate investment and capital stock if one treats goodwill as a form of intangible capital that has grown in tandem with merger activity.

An Anatomy of the Chinese Stock Market Intervention

Zhiguo He, Professor of Finance, Chicago Booth

The Real Spillover Effects of Unconventional Monetary Policy

Anya Kleymenova, Assistant Professor of Accounting and FMC Faculty Scholar, Chicago Booth

In this paper, we investigate the real effects of the European Central Bank’s (ECB) unconventional monetary policy interventions. In particular, we focus on the impact of the introduction of the novel ECB Corporate Sector Purchase Programme (CSPP) —whereby ECB purchases corporate bonds from EU-active firms to increase inflation— on bank lending and corporate investment activities. In the first step, we provide descriptive evidence about the types of bonds ECB-designated central banks purchase in the primary and secondary market. We then investigate whether central banks’ purchases of corporate debt in the primary market affect firms’ capital structure directly (for affected firms) and indirectly (through spillover effects on similar matched firms whose bonds were not selected for purchase by the designated central banks). Furthermore, we plan to study whether this unexpected increase in credit supply and decrease in cost of borrowing changes firms’ real decisions (e.g., investments). Finally, we plan to investigate whether the increased credit supply for larger firms has spillover effects on bank lending to small and medium enterprises (SME sector) and their subsequent real activities.

Privatization of the Banking Sector and Misallocation

Krisztina Orban, Econ PhD Student

Is it possible to transform a country's financial system from one that is a source of misallocation of resources into one that is a source of efficient allocation and finance-induced growth? I answer this question using an experiment of a large-scale bank privatization program that impacted the financial system of an entire country. The experiment is the transition period after the fall of communism. Ownership of banks belonged to the state during communism. After it ended, the comptroller pre-specified a deadline by which state ownership in the financial sector had to be reduced to 25%. After the privatization episode of a bank, I look at how bank profitability and firm-level measures (as growth, productivity, employment, wages and most importantly, capital) changed for firms connected to the privatized bank. Further, having access to data on the universe of firms I am able to test whether there is any improvement in the resource allocation as a consequence of bank privatization.

Purchase of Equifax-BKFS CRISM (Credit Risk Insight Servicing McDash) Data

Joseph Vavra, Associate Professor of Economics, Chicago Booth

This proposal describes data that I believe would be beneficial for the school to purchase for a variety of projects. Several faculty have expressed interest in the data, and the license should be such that it can also be used by students. I will first describe the data and costs and then describe some of my own interests and proposed projects with the data. I also provide a list of faculty who have expressed interest in this data.

The Equilibrium Effects of Asymmetric Information: Evidence from Consumer Credit Markets

Seth Zimmerman, Assistant Professor of Economics and Richard N. Roset, Chicago Booth

This project combines a scaled credit information deletion policy in Chile with administrative data and machine learning techniques to create a “laboratory” in which we study how institutions that limit the information available to lenders affect the quantity of consumer credit. In 2012, Chilean credit bureaus were forced to stop reporting past defaults for 2.8 million individuals with relatively low default amounts. These individuals made up approximately 67% of borrowers in default. Using data on the universe of bank borrowers in Chile and access to the deleted registry information, we measure exposure to the deletion policy by constructing cost predictions with and without the deleted data. We then estimate the effects of exposure to changes predicted costs by comparing changes in borrowing over time for borrowers whose predicted costs rise or fall. We find that limiting credit information reduces overall borrowing, with the biggest proportional losses for poorer individuals. To illustrate how our approach might work in other settings, we simulate the effects of hypothetical deletion policies such as the elimination of data on gender. We find that information restrictions tend to reduce overall borrowing, with largest drops for lower-income individuals and women.