CEPR Seventh European Workshop on Household Finance

CEPR Seventh European Workshop on Household Finance - Programme

CEPR Seventh European Workshop on Household Finance
Helsinki, Finland
4-6 May 2022

*All timings are in Eastern European Summer Time (EEST) 

Note: For each 45 min slot, presenters have 25 mins to present their paper. A total of 10 mins are allocated to the discussants and 10 mins for general discussion.

Programme Committee
Steffen Andersen (Copenhagen Business School and CEPR), Laurent Calvet (EDHEC Business School, CFS and CEPR), Joao Cocco (London Business School and CEPR), Russell Cooper (European University Institute), Francisco Gomes (London Business School and CEPR), Luigi Guiso (EIEF and CEPR), Michael Haliassos (Goethe University Frankfurt and CEPR), Tullio Jappelli (University of Naples Federico II, CSEF and CEPR), Matti Keloharju (Aalto University and CEPR), Samuli Knüpfer (Aalto University and CEPR), Alex Michaelides (Imperial College and CEPR), Monica Paiella (University of Naples Parthenope and CEPR), Kim Peijnenburg (EDHEC and CEPR)  Wenlan Qian (National University of Singapore), Tarun Ramadorai (Imperial College and CEPR), Paolo Sodini (Stockholm School of Economics, Swedish House of Finance and CEPR), Raman Uppal (EDHEC and CEPR) and Sumit Agarwal (National University of Singapore).

Local Organisers
Samuli Knüpfer (Aalto University and CEPR).

CEPR Seventh European Workshop on Household Finance: Summary

CEPR Seventh European Workshop on Household Finance

May 4-6, 2022

By Vimal Balasubramaniam (Queen Mary University of London)

The 2022 edition of the CEPR European Workshop on Household Finance took place on 5 and 6 May in Helsinki, Finland. This summary describes the main themes emerging from the papers presented at the conference. 

On 5 and 6 May 2022, Aalto University School of Business hosted the 2022 edition of the European Workshop on Household Finance organized by the CEPR Network on Household Finance. The Workshop was sponsored by the Aalto University School of Business, Swedish House of Finance, London Business School, and EDHEC Business School.  

The Network runs the European Workshop on Household Finance in the spring of each year since 2016, alongside the European Conference that traces its origins to 2010. Preceding each year’s conference and workshop, the CEPR organises an event that includes a panel discussion around issues of topical interest. This edition’s event was organised by Samuli Knüpfer and discussed the implications of the retail investment boom. The link to information on the most recent event can be found here. This summary presents the main themes that emerged from papers presented at the workshop. 

The composition and distribution of wealth has become one of the defining problems of the world today. Understanding housing ownership, a component of wealth, is thus important. Happel, Karabulut, Schäfer, and Tuzel (2022) ask whether negative housing shocks lead to persistent changes in household attitudes towards housing and homeownership. Using region-by-cohort variation in exposure to the destruction caused by World War II, they find that regions with greater negative shocks are significantly less likely to be homeowners decades later. Kermani and Wong (2022) approach housing wealth from understanding whether there is a racial gap in realized returns. They document a large racial gap, mapped to greater likelihood of distressed home sales by black and Hispanic homeowners. Policies that restructure mortgages for distressed minorities, they show, can potentially reduce the racial wealth gap.  

The dynamics of stock market participation is another important source of variation in wealth distribution. Galaasen and Raja (2022) document new facts on the dynamics of stock market participation by households in Norway: They document that short spells for households in the market are common and that the longer they stay in the market the less likely they are to exit. Additionally, re-entry is very common (typically a year later) and the longer they stay out of the market, the less likely they are to re-enter the market. These facts are potentially explained by households with imperfect memory, learning about their ability.  

Wealth composition and distribution can also have aggregate consequences. In studying the role of wealth composition and distribution on aggregate consumption dynamics, Guler, Kuruscu, and Robinson (2022) argue that the composition and distribution affect the distribution of marginal propensities to consume across households in an economy. They then show that return heterogeneity is the most important factor in determining the average marginal propensity to consume. Interventions that affect consumption-saving decisions therefore can have important welfare gains for households. Chopra (2021) argues that the Dave Ramsey Show – a US radio talk show that encourages people to save more and consume less – affects consumption-saving decisions. Using variation in the rollout of the show across the US, Chopra shows that it decreases consumption expenditure, and with complementary experimental evidence argues that this is likely a result of a persistent effect on people’s attitude towards consumption and debt.  

What drives investors’ portfolio choices? Separating the role of investor preferences from market frictions are important as policy implications that arise them are very different. Choukhmane and Silva (2022) investigate this in the context of asset allocation decisions in 401(k) plans in the U.S. and show that absent frictions, the constant relative risk aversion required to fit lifecycle models to data are much lower than previously assumed in the literature. Investor beliefs also play an important role in determining portfolio choices. Beutel and Weber (2022) show that individuals form pro-cyclical beliefs about capital gains and earnings growth, and document large heterogeneity in information acquisition and processing. They further highlight that their reaction to new information depends on their information preference – conditional on their subjective beliefs, individual choices are consistent with a standard Merton model of portfolio choice. In addition to individual preferences and beliefs, intra-household heterogeneity may also affect portfolio choice. Inkmann, Michaelides, and Zhang (2022) show that intra-household heterogeneity in preferences, nature of labour income, can alter substantially the optimal exposure to stock markets, thus affecting the nature of financial choices (and advice) for households based on heterogeneity within the household.  

A rapidly growing literature on market structure and its role in household financial choices and welfare seeks to document evidence and provide counterfactual estimates in welfare improvements with changes to market design. Both demand and supply side challenges, therefore need careful study. Kinnerud and Lorentzon (2022) examine to what extent information and search frictions result in Swedish pension savers choosing high-fee index funds. They document that lack of awareness and search costs can account for 45% of high-fee index fund holdings in Sweden. Turning to the mortgage market, Fisher, Gavazza, Liu, Ramadorai and Tripathy (2022) study the costs of inaction by some households by estimating the cross-subsidies from poorer households that do not refinance their mortgage to the richer households in the UK, shedding light on how the design of household finance markets can contribute to inequality. Market design, subsumes any question of instrument design. Aydin (2021) studies a debt-relief experiment that randomizes forbearance term and interest rates for delinquent borrowers. Forbearance take-up prevents one in three defaults, and rate reductions even more – especially because of its effects through the present value of future payments; however, the relative effectiveness of either of these interventions is tightly linked to the balance sheet of the borrower.