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Household Finance and Race

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PST)

Marriott Marquis, Grand Ballroom 13
Hosted By: American Economic Association & Committee on the Status of Minority Groups in the Economics Profession
  • Chair: Vicki Bogan, Cornell University

Hispanic Culture, Stock Preferences, and Asset Prices

Jawad Addoum
,
Cornell University
Carina Cuculiza
,
University of Miami
Alok Kumar
,
University of Miami
Stuart Webb
,
University of Minnesota

Abstract

We examine the effects of Hispanic culture on portfolio choice and asset returns in the United States. Using the minimum distance from the Canadian border as an instrument for an area's Hispanic concentration, we show that Hispanic investors are more likely to invest in local, lottery-type, and high-momentum stocks than the average U.S. investor. Their trades in these stocks are correlated and generate excess return comovement that cannot be explained by fundamentals. Additionally, Hispanics' return chasing behavior leads to pronounced momentum returns among firms headquartered in high-Hispanic areas. Overall, these findings suggest that evolving demographics are important for capital markets

New Evidence on Racial Disparities in Financial Outcomes

Damon Jones
,
University of Chicago

Abstract

Although an extensive body of work has documented a substantial gap between black and white households in terms of wealth, much less is known about racial inequality in terms of day-to-day financial experiences. To learn more about this possible dimension of inequality, we build the first administrative dataset that links de-identified high-frequency data on income, spending, and liquid assets with data on race. We observe financial outcomes using bank account data and self-reported race using voter registration and mortgage applications. Our matched dataset includes daily bank account information on 1.7 million households, including over 150,000 black households and 250,000 Hispanic households.

We propose to measure households’ financial buffer and their financial resilience. First, we construct a measure of monthly income volatility. To assess each household’s financial buffer, we compare their liquid assets to the 10th percentile income shock that they typically experience. We use this to compute the distribution of financial buffers for black and white households. Second, we construct mass layoffs using employer-employee matched payroll data. We assess the consumption response of black and white households to the income loss arising from a mass layoff. This research will yield new insights on an important and understudied dimension of racial inequality.

Race, Millennials and Home Ownership in the Aftermath of the Great Recession

Darrick Hamilton
,
Ohio State University

Abstract

This article examines generational trends in home ownership and how past racial disparities in home ownership compare with those affecting millennials – Americans born between 1981 and 1996. Our analysis has implications with regards to how today’s young adults take part in the proverbial American Dream. Since millennials entered adulthood in the aftermath of the Great Recession, their access to housing may have been especially compromised. The Great Recession hit black households (and homeowners) especially hard. The small amount of wealth that black households amassed prior to the Great Recession, mainly in the form of home equity, was almost obliterated after the recession. We analyze Census micro-data from 1940 to 2017 to compare the performance of millennials to the four preceding generations: Generation X (1965–1980), baby boomers (1946–1964), the Silent Generation (1928–1945), and the Greatest Generation (1910–1927). We find that the racial gap in young-adult home ownership is larger for millennials than for any generation in the past century. Although the housing reforms after the Civil Rights era somewhat reduced the racial home ownership gap, our analysis finds that those gains have essentially been reversed.

The Impact of Parental Wealth on College Enrollment & Degree Attainment: Evidence from the Housing Boom & Bust

Rucker Johnson
,
University of California-Berkeley

Abstract

This study provides new evidence on the impact of parental wealth on educational attainment. In order to address the endogeneity of parental wealth, the empirical strategy analyzes parental housing wealth changes induced by local housing booms of the late 1990s and early 2000s, and the subsequent housing bust of the 2007-2009 period. Using geocoded data from the Panel Study of Income Dynamics (1968-2017) linked to MSA housing price data from the Federal Housing Finance Agency, I examine how changes in parental housing equity in the four years prior to their child being college-age affect the likelihood that the child attends college and where they attend (public vs private; in-state vs out-of-state). This provides a test of the role of credit constraints in influencing post-secondary decisions, including if, when, and where individuals attend and complete college.
I find a stronger link between parental SES (as measured by wealth, income, education) and children’s subsequent educational attainment for more recent cohorts (i.e., more important in the 2000s than the early 1980s). Ignoring housing wealth will cause one to mismeasure the extent of family resources. Moreover, the combined effects of parental income and wealth are significantly greater than the effects of income alone.
Discussant(s)
Ngina Chiteji
,
New York University
Peter Blair Henry
,
New York University
Luisa Blanco
,
Pepperdine University
Jermaine Toney
,
Rutgers University
JEL Classifications
  • D1 - Household Behavior and Family Economics