We report on an experiment that shows how the demand for ETF index products affects the prices and trading volume of assets included or excluded from the ETF index. We compare an environment where the ETF index includes all assets against an environment where one asset is excluded from the index. We find that (i) traders place significant value on the ETF asset; (ii) there is evidence of a substantial index premium for included assets; and (iii) the index premium persists even when short-selling is permitted. The price increase of the ETF share and the underlying assets between treatments suggests that ETF products can distort the efficiency of markets.

This paper is the first to non-experimentally establish a causal relationship between households’ mortality beliefs and subsequent saving and consumption decisions. Motivated by prior literature on the effect of personal experiences on individuals’ expectation formation, I exploit the death of a close friend as an exogenous shock to the salience of mortality of a household. Using data from a large household panel, I find that the death of a close friend induces a significant reduction in saving rate of 1.1 percentage points that grows to 1.7 percentage points over the following 6 years. I show that the incorporation of personal experiences in mortality beliefs can be explained by the canonical consumption life-cycle model augmented by the experience-based learning model. The saving response to the shock strongly depends on households’ age, emotional involvement, risk aversion, and decays over time. Overall, this paper provides novel insights into whether and how mortality beliefs are incorporated into households’ financial planning.

Using data from the U.S. syndicated loan market, we find women under-represented among senior commercial bankers. This gap persists due to unequal promotion rates for men and women at the same institution in the same year and cannot be explained by different individual or managerial performance. The gap is more influenced by individuals than institutions, with senior bankers showing assortative matching when changing jobs and perpetuating the promotion gap from their previous workplace. Our findings suggest that the gender gap may be partially attributed to women taking on more family care responsibilities. Hard credentials or female leadership at the top of banks do not alleviate the gender gap, but targeted gender discrimination lawsuits have resulted in increased promotion of women.

We study the post-Great Recession market for retail investment products. With an experiment, we show that low interest rates drive investment demand but not product differentiation. Elicited margins go hand in hand with investors’ underestimation of complex risk exposures. We empirically document that (i) rising complexity follows market growth, (ii) issuer margins increase in complexity, and (iii) simpler products first-order dominate more-complex products. Furthermore, biased dependency perceptions predict margins in the cross-section. Consistent with limited buy-side learning and growing sell-side competition, banks employ strategic price complexity to mitigate competitive pressure. Our findings showcase how low interest rates fuel excessive risk-taking.

Using checking account transactions and credit line, term loan, and customer data from a North-American bank, we find that more inattentive customers are at greater risk of future financial distress. Inattention predicts future financial distress similar to internal and external credit risk models, in-sample and out-of-sample, and also for customers excluded from credit by conventional credit score providers. Our results can explain several "fintech facts," identify inattention as an important cause for future financial distress, and suggest checking account transactions as a newly available financial distress measure for banks and non-banks that enables more credit access without increasing borrower risk.

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.

We challenge conventional wisdom that retail investors largely consume dividends and rarely reinvest them. Using a German online brokerage dataset, we show that the decision whether to consume or reinvest dividends depends on the structure of an investor’s brokerage account. Brokerage cash serves as a buffer that absorbs dividends, keeps them from being spent and, over the long run, is drawn down when dividends are reinvested. Using independent international survey evidence, we show that an account structure including brokerage cash is the rule, not an exception. Therefore, our results generalize to a large share of the retail investor population.

Little is known about the participation of small individual landlords in the rental market, and about rental income earned by households. Using unique tax filings data from Australia, we show that 20% of middle and retirement age median-income individuals are landlords. This fraction has risen over the last 20 years, increasing by 80% for the retirement age group. We provide evidence linking this change to cuts in interest rates, which have led older individuals to substitute interest income with rental income. Higher participation in the rental market rises individuals’ exposure to local shocks, increases house prices, and lowers rental yields.