A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.

• Accominotti, O., Albers, T. N. H., & Oosterlinck, K. (2024). Selective Default Expectations. The Review of Financial Studies, 37, 1979–2015.

  This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market segmentation. We show that, when secondary debt markets are segmented, a large selective default probability can be priced in bond yield spreads. Selective default risk accounted for one-third of the yield spread of German external bonds over the risk-free rate during the 1930s. Selective default expectations arose from differences in the creditor countries’ economic power over the debtor.

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• Akbarpour, M., Dworczak, P., & Kominers, S. D. (2024). Redistributive Allocation Mechanisms. Journal of Political Economy, 132, 1831–1875.

  Many scarce public resources are allocated at below-market-clearing prices and sometimes for free. Such ?nonmarket? mechanisms sacrifice some surplus, yet they can potentially improve equity. We develop a model of mechanism design with redistributive concerns. Agents are characterized by a privately observed willingness to pay for quality, a publicly observed label, and a social welfare weight. A market designer controls allocation and pricing of a set of objects of heterogeneous quality and maximizes the expectation of a welfare function. The designer does not directly observe individuals? social welfare weights. We derive structural insights about the form of the optimal mechanism, leading to a framework for determining how and when to use nonmarket mechanisms.

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• Baum-Snow, N., & Han, L. (2024). The Microgeography of Housing Supply. Journal of Political Economy, 132, 1897–1946.

  We perform a comprehensive neighborhood-level analysis of housing supply. Predictions of floor space and housing unit supply elasticities using our estimates average 0.5 and 0.3 across all urban neighborhoods in the United States, exhibiting greater variation within than between metro regions. New construction accounts for about 50% of unit supply responses, with important additional roles for teardowns and renovations. Supply responses grow with central business district distance mostly from the increasing availability of undeveloped land, flatter land, and less regulation. Identification comes from variation in labor demand shocks to commuting destinations, as aggregated using insights from a quantitative spatial equilibrium model.

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• Berlinski, S., Ferreyra, M. M., Flabbi, L., & Martin, J. D. (2024). Childcare Markets, Parental Labor Supply, and Child Development. Journal of Political Economy, 132, 2113–2177.

  We develop and estimate a model of supply and demand for childcare. On the demand side, households make consumption, labor supply, and childcare decisions. On the supply side, centers make entry, price, and quality decisions. In addition, both paid and informal caregivers are available. Child development is a function of the time spent with parents and nonparental care providers. We estimate the model using data from the Early Childhood Longitudinal Study, Birth Cohort, and perform policy experiments. Vouchers that can be used only in high-quality centers or by working mothers are particularly effective, since they deliver child development gains while increasing mothers? labor supply.

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• Dahlquist, M., & Ibert, M. (2024). Equity Return Expectations and Portfolios: Evidence from Large Asset Managers. The Review of Financial Studies, 37, 1887–1928.

  Collecting large asset managers’ capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers’ equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset managers’ portfolios reflect their heterogeneous expectations: allocation funds of asset managers with larger U.S. equity premium expectations invest significantly more in U.S. equities. The sensitivity of portfolios to expectations seems to be muted by investment mandates and is smaller than the one predicted by a standard portfolio choice model.

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• Dávila, E., Graves, D., & Parlatore, C. (2024). The Value of Arbitrage. Journal of Political Economy, 132, 1947–1993.

  This paper studies the social value of closing price differentials in financial markets. We show that arbitrage gaps exactly correspond to the marginal social value of executing an arbitrage trade. Moreover, arbitrage gaps and price impact measures are sufficient to compute the total social value from closing an arbitrage gap, which may emerge for different reasons, including nonpecuniary benefits of holding particular assets. Theoretically, we show that, for a given arbitrage gap, the total social value of arbitrage is higher in more liquid markets. We compute the welfare gains from closing arbitrage gaps for covered interest parity violations.

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• De la O, R., & Myers, S. (2024). Which Subjective Expectations Explain Asset Prices? The Review of Financial Studies, 37, 1929–1978.

  We present a method for determining whether errors in expectations explain asset pricing puzzles without imposing assumptions about the error mechanism. Using accounting identities and survey forecasts, we find that errors in expected long-term inflation explain price variation, return predictability, and the rejection of the expectations hypothesis for aggregate stock and bond markets. Errors in short-term (long-term) nominal earnings growth expectations explain (do not explain) stock price variation and return predictability. The relevant errors are consistent with mistakes about the persistence of forecasted variables and the response to surprises. A simple framework based on fundamental extrapolation successfully replicates these findings. (JEL G40, G12, G14, E71)

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• LaCour-Little, M., Pavlov, A., & Wachter, S. (2024). Adverse Selection and Climate Risk: A Response to Ouazad and Kahn (2022). The Review of Financial Studies, 37, 1831–1847.

  We identify two issues in the work of Ouazad and Kahn (2022). Correcting either reverses the original result. The two changes are to use the correct FHFA conforming loan limits for each county and year and to compare the individual loan amount to that limit correctly. There is no evidence that lenders transfer climate risk by altering loan origination and securitization behavior. None of our results calls into question the value and importance of the O&K model as a test for adverse selection. The question addressed and the setup of the test are important and should be replicated over time.

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• Li, Q., Shan, H., Tang, Y., & Yao, V. (2024). Corporate Climate Risk: Measurements and Responses. The Review of Financial Studies, 37, 1778–1830.

  This paper conducts a textual analysis of earnings call transcripts to quantify climate risk exposure at the firm level. We construct dictionaries that measure physical and transition climate risks separately and identify firms that proactively respond to climate risks. Our validation analysis shows that our measures capture firm-level variations in respective climate risk exposure. Firms facing high transition risk, especially those that do not proactively respond, have been valued at a discount in recent years as aggregate investor attention to climate-related issues has been increasing. We document differences in how firms respond through investment, green innovation, and employment when facing high climate risk exposure.

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• Martinsson, G., Sajtos, L., Strömberg, P., & Thomann, C. (2024). The Effect of Carbon Pricing on Firm Emissions: Evidence from the Swedish CO2 Tax. The Review of Financial Studies, 37, 1848–1886.

  Sweden was one of the first countries to introduce a carbon tax back in 1991. We assemble a unique data set tracking CO2 emissions from Swedish manufacturing firms over 26 years to estimate the impact of carbon pricing on firm-level emission intensities. We estimate an emission-to-pricing elasticity of around two, with substantial heterogeneity across subsectors and firms, where higher abatement costs and tighter financial constraints are associated with lower elasticities. A simple calibration suggests that 2015 CO2 emissions from Swedish manufacturing would have been roughly 30% higher without carbon pricing.

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