Work in Progress

Lending in the Dark: Local Newspaper Closures and Discrimination in Mortgage Lending

[Job Market Paper]

Abstract: Local newspapers in the United States have declined significantly in recent years, raising serious concerns about several community issues that rely on the investigative reporting of local journalism. This paper examines the extent to which local newspaper closures affect discrimination against minority borrowers in mortgage lending. I find that following a newspaper closure, interest rate differentials between minority (black or Hispanic) and comparable non-minority borrowers increase by 5.5 basis points, widening the existing gap in mortgage outcomes between the two groups. This effect cannot be explained by differences in credit risk or underlying economic conditions. My findings suggest that the local press plays an important role in monitoring lending practices and reducing information asymmetries in the mortgage market.

Working Paper

Financial Literacy and Mortgage Payment Delinquency

SSRN 4770596

Abstract: Financial literacy plays an increasingly important role in determining various economic and financial outcomes. This paper examines the causal effect of financial literacy on mortgage delinquency. Using various instrumental variable (IV) strategies, I find that increased financial literacy significantly reduces mortgage delinquency. This effect cannot be explained by adverse life events, negative equity, and many individual characteristics. In addition, I show that overconfidence is positively correlated with the probability of delinquency. For overconfident individuals, the negative effect of financial literacy on mortgage delinquency is more than double the effect for those who are not overconfident. These findings have important implications for policy and research on the role of financial literacy and overconfidence in personal finance.

Publication

Early Warning Models for Systemic Banking Crises: Can Political Indicators Improve Prediction?

with Silke Uebelmesser, European Journal of Political Economy 81, 2024, 102484.

Abstract: This study provides a novel attempt to assess whether an early warning system (EWS) for systemic banking crises can produce better predictions when political indicators are used alongside traditional macro-financial indicators. Based on a dataset covering 32 advanced economies for the period 1975-2017, we show that the inclusion of political indicators significantly improves the predictive performance of EWS. Our results suggest several channels, related to the role of constitutions and policy predictability, through which the political environment could affect the stability of a banking system. In particular, we find that majority governments, left-wing governments, and a longer time in office of the executive party are negatively correlated with systemic risk. This is robust to a large number of different specifications. Furthermore, we find that long-established institutional systems and plurality electoral systems (compared to proportional representation systems) are associated with a lower likelihood of crises. At the same time, crises are more likely when the incumbent government represents a nationalist platform.