Selling Houses as Minority Broker: Quantifying Diversity Discount

Abstract: Racial and gender inequality among home sellers and buyers is well-known. However, little research examines these disparities faced by brokers. Using Zillow data of 52 cities around Los Angeles, San Francisco, and Miami, we find that properties listed by Asian and Hispanic male brokers have 8 and 21 percentage points lower list price relative to White male brokers. The difference in mean list price between White males and females is 3 percentage points. Listing properties in below-average school neighborhoods, auction or foreclosure is more common among Black and Hispanic brokers. The evidence suggests that minority brokers face significant diversity discount.

The Winner's Curse in Housing Markets (with Adam Nowak, Patrick Smith, Alexei Tchistyi)  

Abstract: Homebuyers who participate in bidding wars are susceptible to a winner’s curse. We theoretically quantify the winner’s curse in housing markets, showing that the presence and intensity of a bidding war exacerbates the winner’s curse. We empirically test our theoretical hypotheses by examining the subsequent performance of bidding war transactions in four large US cities. We find that homeowners who purchase their property via a bidding war are more likely to default and earn lower annualized returns than those who did not purchase their property via a bidding war. We highlight the far-reaching implications of these findings by showing that the winner’s curse undermines housing affordability.

Abstract: Evidence of excess volatilities at high asset prices is associated with bubbles. We propose a new asset price bubble testing methodology based on volatility estimates. Examining the current U.S. equity bull market, we find that the S&P 500 and Dow Jones do not exhibit bubbles, but the Nasdaq does. We stress test our methodology with individual stocks and simulation models to build confidence in the procedure. We show that these results are robust to various adjustments for outliers.

Pricing the Upside Potential to Downside Risk (with Robert A. Jarrow, Daniel Lebret, Crocker H. Liu) - under review

Abstract: Shopping centers represent a rare example wherein prices reflect the internalization of externalities. The relatively lower rent anchors pay which other tenants subsidize proxies for externalities anchors create. A related proxy we theoretically model and empirically analyze are co-tenancy lease provisions triggered when an anchor leaves. This real option provides temporary rent relief and early lease termination. We show this option price increases (decreases) with base rent (rent abatement, lease term, bond price, and default time). Using 236 centers, we find co-tenancy increases a center’s expected sales price and the odds of selling it for more than its offering price.

A Theory of Durable Asset Leasing (with Crocker H. Liu)

Abstract: Firms acquiring durable assets face a lease-or-purchase decision. The collateral channel narrative argues that durability can facilitate (hinder) purchases by enhancing pledgeability (requiring large down payment). Prior research hasn't recognized that some durable assets (e.g. property) can appreciate at a rate that exceeds operational income growth. It also doesn't endogenize a firm's decision to lease assets. We explicitly factor these into a firm's optimal financing and investment decision. A financially constrained firm purchases durable assets expecting to benefit from a profitable resale. If leasing is feasible, it reverts to renting if its down payment becomes burdensome.


Curbing Short Sale and Price Bubbles during COVID-19 (with Robert A. Jarrow)


Applying the Local Martingale Theory of Bubbles to Cryptocurrencies (with Robert A. Jarrow), International Journal of Theoretical and Applied Finance, 2022, Vol. 25 No. 03 2250013 1-25.