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Working papers

Breaking Bad: How Health Shocks Prompt Crime, revise and resubmit American Economic Journal: Applied Economics.

with Steffen Andersen, and Gianpaolo Parise. Download paper. Download online appendix.

Presented at Aarhus University, BI Norwegian Business School, EDHEC Business School, Goethe University Frankfurt, HEC Paris, London Business School, Nova School of Business and Economics, University of St Andrews, Stockholm School of Economics, and the CEPR Household Finance seminar series.

Media coverage: VoxEU

Abstract: We explore the impact of health shocks on criminal behavior by combining nearly four decades of health and criminal records for the entire Danish population. Exploiting plausibly exogenous variations in the timing of cancer diagnoses, we find that health shocks elicit a large and persistent increase in the probability of committing crime. Overall, we estimate that 1,000 diagnoses lead to 14 additional crimes per year perpetrated by either the recovering patients or their healthy spouses. We uncover evidence for two mechanisms explaining our findings. First, an economic motive leads diagnosed individuals to compensate for the loss of earnings on the legal labor market with property crimes. This effect is stronger for people that lack insurance through preexisting wealth, home equity, or marriage. Second, cancer patients face lower expected cost of punishment through a lower survival probability. Experimental evidence does not support a mechanism that operates through changes in preferences. Welfare programs that alleviate the economic repercussions of health shocks are effective at mitigating the ensuing negative externality on society.

Extrapolators and Contrarians: Forecast Bias and Household Stock Trading,

with Steffen Andersen, Stephen Dimmock, and Kasper Meisner Nielsen. Download paper.

Presented at Aarhus University, Academy of Behavioral Finance and Economics, Australia National University Summer Camp, Bank of England Workshop, Copenhagen Business School, CEPR Household Finance Conference, ESSEC Business School, Frankfurt School of Management, Helsinki Finance Summit, IESEG Business School, London Business School, Tilburg University, Toulouse School of Economics, University of Alabama, University of Geneva, University of Hawaii, University of Zurich, and the Workshop on Micro Data Meet Macro Models 

Abstract: We test whether forecast bias affects household stock trading by combining measures of bias elicited in laboratory experiments with administrative trade-level data.  On average, subjects exhibit positive forecast bias (i.e., extrapolators), while a large minority exhibit negative forecast bias (i.e., contrarians).  Forecast bias is positively associated with past excess returns of stocks that are purchased: Extrapolators (contrarians) purchase past winners (losers).  Forecast bias is negatively associated with the capital gains of stocks that are sold.  Furthermore, forecast bias explains investor heterogeneity in the relation between market returns and net flows to stocks.  Overall, our study provides evidence of a common mechanism – forecast bias – that links past returns to trading decisions for purchases, sales, and net flows. 

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