Do Community Banks Stabilize Housing Prices?

This paper examines the influence that community bank residential mortgage lending has on regional housing prices and ultimately the housing price bubble that culminated with the Great Recession of 2007–09. Previous research suggests that community bank lending is influenced by financial intermediation frictions, such as difficulty attracting uninsured deposits and limited access to the bond market. Such frictions cause bank liquidity to play an important role in the ability of community banks to navigate swings in the local economy as well as real estate prices. We take these frictions as the starting point in our analysis and contribute to literature by focusing on the impact that community banks exert on housing prices. Specifically, we find that while community bank residential mortgage holdings are marginally related to housing price cycles, their mortgage lending does not contribute in an economically meaningful way to housing price bubbles. Even though bank liquidity, defined as the ratio of securities-to-assets, plays a role in the degree of community bank residential mortgage lending, it is not sufficiently strong enough to influence housing prices

The Liquidity Risk of REITs

This study examines the liquidity risk of real estate investment trusts (REITs) as measured by their return sensitivity to marketwide liquidity shocks. Due to their unique dividend payout rules and associated high cash payouts, REITs should benefit investors by reducing their reliance on the stock market to satisfy liquidity needs. Using a sample of 440 equity REITs from 1980 through 2015, we find empirical evidence consistent with this paradigm along four key dimensions. First, unlike non-REIT real estate firms, REITs exhibit a negative sensitivity to marketwide liquidity shocks. More specifically, when marketwide liquidity declines, REIT prices tend to increase relative to the broader stock market. Second, our findings are not property type specific, but rather are evident across broad classifications of property type sectors. Third, consistent with the importance of cash flow stability, smaller REITs provide protection against liquidity risk only when their dividend frequency is relatively high. Finally, examining only those firms changing their REIT status within the sample period, we find marketwide liquidity risk is lower when these firms operate as REITs than when they operate as non-REITs. Taken together, these findings provide support for the notion that investors view dividend payouts as a source of enhanced liquidity, and further, that REITs, as a security class with relatively high regulatory mandated payout requirements, provide investors with an important benefit in the form of reduced liquidity risk

Racial animosity and Black financial advisor underrepresentation

This study provides compelling evidence for Black underrepresenation in the financial advisor industry. Using a dataset of all U.S. securities-licensed individuals (N = 642,543), we first estimate the racial and ethnic composition of the industry using an algorithm that accounts for name, gender, and location. Second, we use a dataset enhanced by a commercial vendor to restrict the analysis to only those identified as working as financial advisors (n = 237,435). Using Google search volume for a racial epithet as a proxy for area racism, we find that greater racism in a market is associated with greater Black advisor underrepresentation. Overall, we estimate at the individual level that 10.1% of financial advisors are Black (relative to 13.4% of the U.S. population). Furthermore, our results suggest market-level racial animosity toward Blacks is negatively associated with Black advisor representation. We estimate a difference of 0.9 percentage points when comparing markets with the highest and lowest levels of animosity. For the average market with an estimated 11.4% Black advisor representation, an increase of 0.9 percentage points would represent a 7.9% increase in Black advisor representation