Retail Investor Heterogeneity: Evidence from WallStreetBets
Job Market Paper
I study the heterogeneity of retail investors based on the stocks they chose to discuss. I use Reddit WallStreetBets data totalling more than 1.5 million posts and 35 million comments from 2018 to the end of 2021. I find retail investors to be diverse, with distinct subgroups showing interest in stocks with attention-grabbing features, or fundamental based investing. I also find those attributes to be connected to echo chamber effects, likely causing confirmation bias, finding that subgroups do not mix. Finally, I find subgroups to be of differential importance in a predictability exercise. Effects commonly attributed to retail investors, such as increased volatility, might be coming from a sub-sample of them but also a sub-sample of stocks.
Optimal Tax Policy with Misreporting: Theory, and Evidence from Real Estate
with Santosh Anagol, Vimal Balasubramaniam, Benjamin B Lockwood and Tarun Ramadorai
Taxable transactions may be misreported to evade taxes and hide illicit wealth. Tax authorities must therefore set policy governing both tax rates and enforcement. We develop a model of optimal taxation and enforcement in which policymakers seek both welfare maximization and "tax accuracy," wherein taxpayers remit the amount that they statutorally owe under truthful reporting; we characterize the optimal combination of tax rate and enforcement stringency in this setting. We apply this framework to the Mumbai real-estate market, a setting with widespread misreporting and a transparent enforcement instrument: government-specified guidance values act as a minimum required tax base. Bunching in reported transaction values around the guidance value identifies the degree of under-reporting. We estimate the elasticities governing the optimal degree of enforcement, and we recover the revealed-preference inaccuracy penalty that rationalizes observed policy. We show that mortgage-facilitated purchases-which are subject to additional reporting requirements-exhibit less evidence of misreporting, suggesting that financial markets can play a complementary role in tax enforcement.
Privacy Policies and Consumer Data Extraction: Evidence From U.S. Firms
with Tarun Ramadorai and Ansgar Walther
Review of Finance (Forthcoming)
Using a comprehensive dataset of privacy policies, firm characteristics, consumer tracking, and cybersecurity incidents, we examine the heterogeneity of firms’ data extraction practices and the influence of privacy regulations. Rather than adopting standardized boilerplate privacy policies, we find substantial within-industry differences correlated with firms’ technical sophistication; firms engaging in data extraction have lengthier policies, seeking to hedge legal risks. Firms with intermediate technical sophistication appear to follow a ”collect and share” model, collecting large amounts of consumer data and sharing it with third-parties for processing, thus creating cybersecurity risks. Conversely, high sophistication firms appear to implement a “receive and process” model, consistent with a two-tier data market in which data flows from intermediate to high sophistication firms.
with Edward R. Morrison and Belisa Pang
The Journal of Law and Economics 63 (2), 269-295
Among consumers who file for bankruptcy, African Americans file Chapter 13 petitions at substantially higher rates than other racial groups. Some have hypothesized that the difference is attributable to discrimination by attorneys. We show that the difference may be attributable, in substantial part, to a selection effect: Among distressed consumers, African Americans have longer commutes to work, rely more heavily on cars for the commute, and therefore have greater demand for a bankruptcy process (Chapter 13) that allows them to retain their cars. We begin by showing that African Americans tend to have longer commuting times than other consumers and, when they do have longer commuting times, they also have relatively high Chapter 13 filing rates. We show this using data from Atlanta, Chicago, and Memphis, each of which has been identified as a location with over-representation of African Americans in Chapter 13. We then test our hypothesis that African Americans' reliance on automobiles is a cause of their substantially higher use of Chapter 13. We do this using data from Chicago, where the city recently implemented an aggressive program to collect parking debts by seizing the cars and suspending the licenses of consumers with large debts. We show that this city-wide program disproportionately affected African Americans and, as a result, their share of Chapter 13 filings increased substantially. Although we do not disprove the possibility of discrimination by attorneys, our data show that selection effects are potentially as important in explaining patterns in Chapter 13 cases.
Consumer Bankruptcy Pathologies
with Edward R. Morrison
Journal of Institutional and Theoretical Economics, volume 173, issue 1, p. 174 - 196
This paper questions several longstanding descriptions of consumer bankruptcy in the United States. We focus on Chapter 13, which discharges debts after consumers pay disposable income to creditors for up to five years. Many studies document pathologies, including high failure rates, racial disparities, low creditor recoveries, and attorney biases. We observe the same patterns in new data drawn from Cook County, Illinois, but show that these pathologies are central tendencies that ignore substantial heterogeneity across consumers. Several are driven by subsets of consumers; some disappear once we account for account for consumer heterogeneity. We present new evidence that some pathologies reflect biases in non-bankruptcy law, not in the bankruptcy process itself.