Nikolai Roussanov | University of Pennsylvania (original) (raw)

Papers by Nikolai Roussanov

Using nationally representative data on consumption, we show that Blacks and Hispanics devote lar... more Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large. While racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used to reflect a household's economic position relative to a reference group. Using merged data on race and state level income, we demonstrate that a key prediction of our model-that visible consumption should be declining in mean reference group income-is strongly borne out in the data separately for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption. We conclude with an assessment of the role of conspicuous consumption in explaining lower spending by racial minorities on items likes health and education, as well as their lower rates of wealth accumulation.

Social Science Research Network, 2012

Mortgage refinancing activity associated with extraction of home equity contains a strongly count... more Mortgage refinancing activity associated with extraction of home equity contains a strongly counter-cyclical component consistent with household demand for liquidity. We estimate a structural model of liquidity management featuring counter-cyclical idiosyncratic labor income uncertainty, both long-term and short-term mortgages, and realistic borrowing constraints. We then empirically evaluate its predictions for the households' choices of leverage, liquid assets, and mortgage refinancing using micro-level data. Taking the observed historical paths of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for many salient features in the evolution of balance sheets and consumption in the cross section of households over the 2001-2012 period.

Journal of Financial Economics, Mar 1, 2014

We describe a novel currency investment strategy, the 'dollar carry trade,' which delivers large ... more We describe a novel currency investment strategy, the 'dollar carry trade,' which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies. Using a no-arbitrage model of exchange rates we show that these excess returns compensate U.S. investors for taking on aggregate risk by shorting the dollar in bad times, when the price of risk is high. The counter-cyclical variation in risk premia leads to strong return predictability: the average forward discount and U.S. industrial production growth rates forecast up to 25% of the dollar return variation at the one-year horizon.

Review of Financial Studies, Aug 30, 2011

We identify a 'slope' factor in exchange rates. High interest rate currencies load more on this s... more We identify a 'slope' factor in exchange rates. High interest rate currencies load more on this slope factor than low interest rate currencies. This factor accounts for most of the crosssectional variation in average excess returns between high and low interest rate currencies. A standard, no-arbitrage model of interest rates with two factors-a country-specific factor and a global factor-can replicate these findings, provided there is sufficient heterogeneity in exposure to global or common innovations. We show that our slope factor identifies these common shocks, and we provide empirical evidence that it is related to changes in global equity market volatility. By investing in high interest rate currencies and borrowing in low interest rate currencies, US investors load up on global risk.

Social Science Research Network, 2017

We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Whart... more We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Wharton, and conference participants at the Carnegie-Rochester-NYU Conference on Public Policy, for which this paper was prepared. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Social Science Research Network, 2021

Decomposing ination into core and non-core components (e.g., energy) sheds new light on the natur... more Decomposing ination into core and non-core components (e.g., energy) sheds new light on the nature of ination risk and risk premia. While stocks have insignicant exposure to headline ination in the U.S., their core ination betas are negative and energy betas are positive. Conventional ination hedges such as currencies and commodities only hedge against energy ination risk but not the core. These hedging properties are reected in the prices of ination risks: only core ination carries a negative risk premium and its magnitude is consistent both within and across asset classes, whereas the price of energy ination risk is indistinguishable from zero. The relative contribution of core and energy ination varies over time, which helps explain why the correlation between stock and bond returns appears to switch sign in the data. We develop a two-sector New Keynesian model to account for these facts.

arXiv (Cornell University), Dec 13, 2021

This paper introduces a simple and tractable sieve estimation of semiparametric conditional facto... more This paper introduces a simple and tractable sieve estimation of semiparametric conditional factor models with latent factors. We establish large-N-asymptotic properties of the estimators without requiring large T. We also develop a simple bootstrap procedure for conducting inference about the conditional pricing errors as well as the shapes of the factor loading functions. These results enable us to estimate conditional factor structure of a large set of individual assets by utilizing arbitrary nonlinear functions of a number of characteristics without the need to pre-specify the factors, while allowing us to disentangle the characteristics' role in capturing factor betas from alphas (i.e., undiversifiable risk from mispricing). We apply these methods to the cross-section of individual U.S. stock returns and find strong evidence of large nonzero pricing errors that combine to produce arbitrage portfolios with Sharpe ratios above 3. We also document a significant decline in apparent mispricing over time.

RePEc: Research Papers in Economics, 2007

acknowledges support from the National Science Foundation under Award Number SES0519372. Heaton a... more acknowledges support from the National Science Foundation under Award Number SES0519372. Heaton acknowledges support from the Center for Research in Security Prices. 1 While Backus et al. (2004) do an admirable job of describing a broad class of preference specifications and their use in macroeconomics, the empirical challenge is how to distinguish among these alternatives. As Hansen (2004) emphasizes, some specifications are inherently very difficult to distinguish from one another. 2 More formally, C t and V t are restricted to be F t measurable.

Recreation prices and hours worked have both fallen over the last century. We construct a macroec... more Recreation prices and hours worked have both fallen over the last century. We construct a macroeconomic model with general preferences that allows for trending recreation prices, wages, and work hours along a balanced-growth path. Estimating the model using aggregate data from OECD countries, we find that the fall in recreation prices can explain a large fraction of the decline in hours. We also use our model to show that the diverging prices of the recreation bundles consumed by different demographic groups can account for much of the increase in leisure inequality observed in the United States over the last decades.

Marital status can both reflect and affect individual preferences. We explore the impact of marri... more Marital status can both reflect and affect individual preferences. We explore the impact of marriage on corporate chief executive officers (CEOs) and find that firms run by single CEOs exhibit higher stock return volatility, pursue more aggressive investment policies, and do not respond to changes in idiosyncratic risk. These effects are weaker for older CEOs. Our findings continue to hold when we use variation in divorce laws across states to instrument for CEO marital status, which supports the hypothesis that marriage itself drives choices rather than it just reflecting innate heterogeneity in preferences. We explore various potential explanations for why single CEOs may be less risk averse. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1926

Decomposing ination into core and non-core components (e.g., energy) sheds new light on the natur... more Decomposing ination into core and non-core components (e.g., energy) sheds new light on the nature of ination risk and risk premia. While stocks have insignicant exposure to headline ination in the U.S., their core ination betas are negative and energy betas are positive. Conventional ination hedges such as currencies and commodities only hedge against energy ination risk but not the core. These hedging properties are reected in the prices of ination risks: only core ination carries a negative risk premium and its magnitude is consistent both within and across asset classes, whereas the price of energy ination risk is indistinguishable from zero. The relative contribution of core and energy ination varies over time, which helps explain why the correlation between stock and bond returns appears to switch sign in the data. We develop a two-sector New Keynesian model to account for these facts.

SSRN Electronic Journal, 2021

This paper introduces a simple and tractable sieve estimation of semiparametric conditional facto... more This paper introduces a simple and tractable sieve estimation of semiparametric conditional factor models with latent factors. We establish large-N-asymptotic properties of the estimators and the tests without requiring large T. We also develop a simple bootstrap procedure for conducting inference about the conditional pricing errors as well as the shapes of the factor loadings functions. These results enable us to estimate conditional factor structure of a large set of individual assets by utilizing arbitrary nonlinear functions of a number of characteristics without the need to pre-specify the factors, while allowing us to disentangle the characteristics' role in capturing factor betas from alphas (i.e., undiversifiable risk from mispricing). We apply these methods to the cross-section of individual U.S. stock returns and find strong evidence of large nonzero pricing errors that combine to produce arbitrage portfolios with Sharpe ratios above 3.

SSRN Electronic Journal, 2020

The real price of recreation goods and services has fallen dramatically over the last century. At... more The real price of recreation goods and services has fallen dramatically over the last century. At the same time, hours per worker have also been on a steady decline. As recreation goods make leisure time more enjoyable, we investigate if the fall in their price has contributed to the decline in work hours. Using aggregate data from OECD countries, as well as disaggregated data from the United States, we provide evidence that the two are strongly related. To identify the effect of recreation prices on hours worked, we use variation in the bundle of recreational goods across demographic groups to instrument for the changing price of leisure faced by these groups over time. We then construct a macroeconomic model with general preferences that allows for trending relative prices and work hours along a balanced growth path. We estimate the model and find that the decline in recreation prices can explain a large fraction of the global decline in work hours.

SSRN Electronic Journal, 2017

We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Whart... more We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Wharton, and conference participants at the Carnegie-Rochester-NYU Conference on Public Policy, for which this paper was prepared. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We quantify the effect of a significant technological innovation, shale oil development, on asset... more We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that $3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.

Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of we... more Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of wealth. If status concerns arise endogenously due to competition in the marriage market, then unmarried individuals should take greater risks. We test this hypothesis by studying corporate CEOs. We find that single CEOs are associated with firms exhibiting higher stock return volatility, pursue more aggressive investment policies, and are not affected by increases in idiosyncratic risk. These effects are weaker for older CEOs. Our results also hold when we use variation in divorce laws across states to instrument for CEO marital status.

Social Science Research Network, 2012

Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of we... more Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of wealth. If status concerns arise endogenously due to competition in the marriage market, then unmarried individuals should take greater risks. We test this hypothesis by studying corporate CEOs. We find that single CEOs are associated with firms exhibiting higher stock return volatility, pursue more aggressive investment policies, and are not affected by increases in idiosyncratic risk. These effects are weaker for older CEOs. Our results also hold when we use variation in divorce laws across states to instrument for CEO marital status.

Using nationally representative data on consumption, we show that Blacks and Hispanics devote lar... more Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large. While racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used to reflect a household's economic position relative to a reference group. Using merged data on race and state level income, we demonstrate that a key prediction of our model-that visible consumption should be declining in mean reference group income-is strongly borne out in the data separately for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption. We conclude with an assessment of the role of conspicuous consumption in explaining lower spending by racial minorities on items likes health and education, as well as their lower rates of wealth accumulation.

Social Science Research Network, 2012

Mortgage refinancing activity associated with extraction of home equity contains a strongly count... more Mortgage refinancing activity associated with extraction of home equity contains a strongly counter-cyclical component consistent with household demand for liquidity. We estimate a structural model of liquidity management featuring counter-cyclical idiosyncratic labor income uncertainty, both long-term and short-term mortgages, and realistic borrowing constraints. We then empirically evaluate its predictions for the households' choices of leverage, liquid assets, and mortgage refinancing using micro-level data. Taking the observed historical paths of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for many salient features in the evolution of balance sheets and consumption in the cross section of households over the 2001-2012 period.

Journal of Financial Economics, Mar 1, 2014

We describe a novel currency investment strategy, the 'dollar carry trade,' which delivers large ... more We describe a novel currency investment strategy, the 'dollar carry trade,' which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies. Using a no-arbitrage model of exchange rates we show that these excess returns compensate U.S. investors for taking on aggregate risk by shorting the dollar in bad times, when the price of risk is high. The counter-cyclical variation in risk premia leads to strong return predictability: the average forward discount and U.S. industrial production growth rates forecast up to 25% of the dollar return variation at the one-year horizon.

Review of Financial Studies, Aug 30, 2011

We identify a 'slope' factor in exchange rates. High interest rate currencies load more on this s... more We identify a 'slope' factor in exchange rates. High interest rate currencies load more on this slope factor than low interest rate currencies. This factor accounts for most of the crosssectional variation in average excess returns between high and low interest rate currencies. A standard, no-arbitrage model of interest rates with two factors-a country-specific factor and a global factor-can replicate these findings, provided there is sufficient heterogeneity in exposure to global or common innovations. We show that our slope factor identifies these common shocks, and we provide empirical evidence that it is related to changes in global equity market volatility. By investing in high interest rate currencies and borrowing in low interest rate currencies, US investors load up on global risk.

Social Science Research Network, 2017

We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Whart... more We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Wharton, and conference participants at the Carnegie-Rochester-NYU Conference on Public Policy, for which this paper was prepared. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Social Science Research Network, 2021

Decomposing ination into core and non-core components (e.g., energy) sheds new light on the natur... more Decomposing ination into core and non-core components (e.g., energy) sheds new light on the nature of ination risk and risk premia. While stocks have insignicant exposure to headline ination in the U.S., their core ination betas are negative and energy betas are positive. Conventional ination hedges such as currencies and commodities only hedge against energy ination risk but not the core. These hedging properties are reected in the prices of ination risks: only core ination carries a negative risk premium and its magnitude is consistent both within and across asset classes, whereas the price of energy ination risk is indistinguishable from zero. The relative contribution of core and energy ination varies over time, which helps explain why the correlation between stock and bond returns appears to switch sign in the data. We develop a two-sector New Keynesian model to account for these facts.

arXiv (Cornell University), Dec 13, 2021

This paper introduces a simple and tractable sieve estimation of semiparametric conditional facto... more This paper introduces a simple and tractable sieve estimation of semiparametric conditional factor models with latent factors. We establish large-N-asymptotic properties of the estimators without requiring large T. We also develop a simple bootstrap procedure for conducting inference about the conditional pricing errors as well as the shapes of the factor loading functions. These results enable us to estimate conditional factor structure of a large set of individual assets by utilizing arbitrary nonlinear functions of a number of characteristics without the need to pre-specify the factors, while allowing us to disentangle the characteristics' role in capturing factor betas from alphas (i.e., undiversifiable risk from mispricing). We apply these methods to the cross-section of individual U.S. stock returns and find strong evidence of large nonzero pricing errors that combine to produce arbitrage portfolios with Sharpe ratios above 3. We also document a significant decline in apparent mispricing over time.

RePEc: Research Papers in Economics, 2007

acknowledges support from the National Science Foundation under Award Number SES0519372. Heaton a... more acknowledges support from the National Science Foundation under Award Number SES0519372. Heaton acknowledges support from the Center for Research in Security Prices. 1 While Backus et al. (2004) do an admirable job of describing a broad class of preference specifications and their use in macroeconomics, the empirical challenge is how to distinguish among these alternatives. As Hansen (2004) emphasizes, some specifications are inherently very difficult to distinguish from one another. 2 More formally, C t and V t are restricted to be F t measurable.

Recreation prices and hours worked have both fallen over the last century. We construct a macroec... more Recreation prices and hours worked have both fallen over the last century. We construct a macroeconomic model with general preferences that allows for trending recreation prices, wages, and work hours along a balanced-growth path. Estimating the model using aggregate data from OECD countries, we find that the fall in recreation prices can explain a large fraction of the decline in hours. We also use our model to show that the diverging prices of the recreation bundles consumed by different demographic groups can account for much of the increase in leisure inequality observed in the United States over the last decades.

Marital status can both reflect and affect individual preferences. We explore the impact of marri... more Marital status can both reflect and affect individual preferences. We explore the impact of marriage on corporate chief executive officers (CEOs) and find that firms run by single CEOs exhibit higher stock return volatility, pursue more aggressive investment policies, and do not respond to changes in idiosyncratic risk. These effects are weaker for older CEOs. Our findings continue to hold when we use variation in divorce laws across states to instrument for CEO marital status, which supports the hypothesis that marriage itself drives choices rather than it just reflecting innate heterogeneity in preferences. We explore various potential explanations for why single CEOs may be less risk averse. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1926

Decomposing ination into core and non-core components (e.g., energy) sheds new light on the natur... more Decomposing ination into core and non-core components (e.g., energy) sheds new light on the nature of ination risk and risk premia. While stocks have insignicant exposure to headline ination in the U.S., their core ination betas are negative and energy betas are positive. Conventional ination hedges such as currencies and commodities only hedge against energy ination risk but not the core. These hedging properties are reected in the prices of ination risks: only core ination carries a negative risk premium and its magnitude is consistent both within and across asset classes, whereas the price of energy ination risk is indistinguishable from zero. The relative contribution of core and energy ination varies over time, which helps explain why the correlation between stock and bond returns appears to switch sign in the data. We develop a two-sector New Keynesian model to account for these facts.

SSRN Electronic Journal, 2021

This paper introduces a simple and tractable sieve estimation of semiparametric conditional facto... more This paper introduces a simple and tractable sieve estimation of semiparametric conditional factor models with latent factors. We establish large-N-asymptotic properties of the estimators and the tests without requiring large T. We also develop a simple bootstrap procedure for conducting inference about the conditional pricing errors as well as the shapes of the factor loadings functions. These results enable us to estimate conditional factor structure of a large set of individual assets by utilizing arbitrary nonlinear functions of a number of characteristics without the need to pre-specify the factors, while allowing us to disentangle the characteristics' role in capturing factor betas from alphas (i.e., undiversifiable risk from mispricing). We apply these methods to the cross-section of individual U.S. stock returns and find strong evidence of large nonzero pricing errors that combine to produce arbitrage portfolios with Sharpe ratios above 3.

SSRN Electronic Journal, 2020

The real price of recreation goods and services has fallen dramatically over the last century. At... more The real price of recreation goods and services has fallen dramatically over the last century. At the same time, hours per worker have also been on a steady decline. As recreation goods make leisure time more enjoyable, we investigate if the fall in their price has contributed to the decline in work hours. Using aggregate data from OECD countries, as well as disaggregated data from the United States, we provide evidence that the two are strongly related. To identify the effect of recreation prices on hours worked, we use variation in the bundle of recreational goods across demographic groups to instrument for the changing price of leisure faced by these groups over time. We then construct a macroeconomic model with general preferences that allows for trending relative prices and work hours along a balanced growth path. We estimate the model and find that the decline in recreation prices can explain a large fraction of the global decline in work hours.

SSRN Electronic Journal, 2017

We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Whart... more We thank Henry Siu (discussant), Sevin Yeltekin (editor), seminar participants at Columbia, Wharton, and conference participants at the Carnegie-Rochester-NYU Conference on Public Policy, for which this paper was prepared. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We quantify the effect of a significant technological innovation, shale oil development, on asset... more We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that $3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.

Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of we... more Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of wealth. If status concerns arise endogenously due to competition in the marriage market, then unmarried individuals should take greater risks. We test this hypothesis by studying corporate CEOs. We find that single CEOs are associated with firms exhibiting higher stock return volatility, pursue more aggressive investment policies, and are not affected by increases in idiosyncratic risk. These effects are weaker for older CEOs. Our results also hold when we use variation in divorce laws across states to instrument for CEO marital status.

Social Science Research Network, 2012

Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of we... more Status concerns can drive risk-taking behavior by affecting the payoff to a marginal dollar of wealth. If status concerns arise endogenously due to competition in the marriage market, then unmarried individuals should take greater risks. We test this hypothesis by studying corporate CEOs. We find that single CEOs are associated with firms exhibiting higher stock return volatility, pursue more aggressive investment policies, and are not affected by increases in idiosyncratic risk. These effects are weaker for older CEOs. Our results also hold when we use variation in divorce laws across states to instrument for CEO marital status.