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Household Finance

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Marriott Rivercenter, Grand Ballroom Salon G
Hosted By: American Finance Association
  • Chair: Francisco Gomes, London Business School

Salient Attributes and Household Demand for Security Designs

Petra Vokata
Ohio State University


Using a novel database of complex securities, I study how salient attributes of security design distort household investment decisions. I show banks add non-standard (fine-print) conditions to artificially increase advertised headline returns---a phenomenon I term "enhancement." Enhancement increases headline returns by 11 percentage points, on average, but does not increase realized returns. Flexibly controlling for all other product attributes and using high-frequency shocks to structuring costs of enhancement for identification, I find demand is highly elastic to enhancement. Enhancement is costly to investors: a one standard deviation decrease implies savings of more than $1 billion in fees.

Mortgage Lock-In, Mobility, and Labor Reallocation

Julia Fonseca
University of Illinois
Lu Liu
University of Pennsylvania


We study the impact of rising mortgage rates on mobility and labor reallocation.
Using individual-level credit record data and variation in the timing of mortgage origination, we show that a 1 p.p. rise in mortgage lock-in, measured as the difference between the mortgage rate locked in at purchase and the current market rate (Δr), reduces moving rates by 0.68 p.p, or 9%. We show that this relationship is nonlinear: once Δr is high enough, households’ alternative of refinancing without moving becomes attractive enough that moving probabilities no longer depend on Δr. Lastly, we find that mortgage lock-in attenuates household responsiveness to shocks to employment opportunities, measured as MSA-level wage growth and instrumented with a shift-share instrument. The responsiveness of within-MSA moving rates to MSA-level wage growth is half as large for households who are more locked in (below-median Δr) than for those who are less locked in. We provide causal estimates of mortgage lock-in effects, highlighting unintended consequences of monetary tightening with long-term fixed-rate mortgages on housing and labor markets.

Choosing Pension Fund Investment Consultants

Aleksandar Andonov
University of Amsterdam
Matteo Bonetti
De Nederlandsche Bank
Irina Stefanescu
Federal Reserve Board


Pension funds rely on the advisory services of investment consultants for designing target asset allocation policy, monitoring and selecting investment managers, and benchmarking performance. Pension funds have increased the number of investment consultants over time, particularly by hiring specialized consultants in alternative assets, such as real assets, private equity and hedge funds. We explore the factors underlying the hiring and firing of consultants and examine whether these decisions are made in the best interests of participants. We examine three potential motivations of why pension funds rely on investment consultants: (a) poor investment expertise; (b) limited access to asset managers; and (c) responsibility shifting. In contrast with the poor investment expertise hypothesis, we find that pension funds that hire specialized investment consultants for the first time already made investments in that asset class. In line with the limited access hypothesis, we find that pension funds that hire specialized investment consultants are more likely to invest in oversubscribed private equity funds and less likely to invest in first-time funds without track record. However, using a specialized consultant does not improve pension fund performance in private markets. In line the responsibility shifting hypothesis, we find that large pension funds with political board members hire more investment consultants. While we find that the turnover of consultants is strongly linked to past performance, there is only weak evidence that performance improves subsequent to a consultant replacement and that pension fund benefit from the increased the number of investment consultants over time.

Mark Egan
Harvard University
Julie Marx
Copenhagen Business School
Alessandro Previtero
Indiana University
JEL Classifications
  • G1 - General Financial Markets