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Household Finance

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Marriott Rivercenter, Grand Ballroom Salon G
Hosted By: American Finance Association
  • Chair: Francisco Gomes, London Business School

Salient Attributes and Household Demand for Security Designs

Petra Vokata
Ohio State University


Can salient attributes distort high-stakes investment decisions? Using a rich dataset of complex retail securities, I show banks add non-standard (fine-print) conditions to artificially increase advertised rates of headline return and downside protection---a phenomenon I term "enhancement." Enhancement increases headline returns by 11 percentage points, on average, but does not increase realized returns. Flexibly controlling for all other product attributes and using shocks to structuring costs of enhancement for identification, I find demand is highly elastic to enhancement. Investors are willing to pay 35--60 basis points for one percentage point of enhancement, which I show is inconsistent with rational portfolio choice. I then explore salience as the primary psychological mechanism that is consistent with my results. In total, I estimate investors lost $1.6 billion due to this salience distortion.

Mortgage Lock-In, Mobility, and Labor Reallocation

Julia Fonseca
University of Illinois
Lu Liu
University of Pennsylvania


We 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

Aleksandar Andonov
University of Amsterdam
Matteo Bonetti
De Nederlandsche Bank
Irina Stefanescu
Federal Reserve Board


Pension 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.

Mark Egan
Harvard University
Julie Marx
Copenhagen Business School
Alessandro Previtero
Indiana University
JEL Classifications
  • G1 - General Financial Markets