Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Francisco Gomes, London Business School
Mortgage Lock-In, Mobility, and Labor Reallocation
AbstractWe study the impact of rising mortgage rates on mobility and labor reallocation.
Using individual-level credit record data and variation in the timing of mortgage origination, we show that a 1 p.p. rise in mortgage lock-in, measured as the difference between the mortgage rate locked in at purchase and the current market rate (Δr), reduces moving rates by 0.68 p.p, or 9%. We show that this relationship is nonlinear: once Δr is high enough, households’ alternative of refinancing without moving becomes attractive enough that moving probabilities no longer depend on Δr. Lastly, we find that mortgage lock-in attenuates household responsiveness to shocks to employment opportunities, measured as MSA-level wage growth and instrumented with a shift-share instrument. The responsiveness of within-MSA moving rates to MSA-level wage growth is half as large for households who are more locked in (below-median Δr) than for those who are less locked in. We provide causal estimates of mortgage lock-in effects, highlighting unintended consequences of monetary tightening with long-term fixed-rate mortgages on housing and labor markets.
Choosing Pension Fund Investment Consultants
AbstractPension funds rely on consultants for asset allocation, manager selection, and benchmarking decisions, and have expanded their consultant base by hiring more specialized consultants in alternative assets. We examine the selection and termination of investment consultants. The replacement of general consultants stems from prior relative underperformance, while target asset allocation gaps and board composition influence the hiring of specialized consultants. Replacing general consultants is followed by changes in asset allocation but no significant improvements in pension fund performance. Specialized consultants enable pension funds to scale up the number of investments in private markets as pension funds are more likely to invest in private funds from the consultants' networks. However, specialized consultants do not provide access to rationed private funds, and relying on their services also does not improve performance. The growing concentration of consultants and their influence on asset manager selection by their clients may increase pension fund flow correlations.
- G1 - General Financial Markets