Kian Samaee

Kian Samaee
Job Market Paper

Inaction, Search Costs and Market Power in the US Mortgage Market (with Sumedh Ambokar)

Many US mortgage borrowers do not refinance, despite seemingly having financial incentives to do so. We explore the role of search costs in explaining this inaction, focusing on the 2009-2015 period when mortgage rates declined significantly. We estimate a (dynamic) discrete choice model of refinancing and search decisions using a proprietary panel data set, which includes information on the sequence of refinancing decisions and search intensity (the number of mortgage inquiries). On the supply side of the equilibrium model, loan originators take into account the search friction of the borrowers when they offer rates. We find that search costs significantly inhibit refinancing through two channels. First, higher search costs directly increase the cost of refinancing. Second, they also indirectly increase loan originators’ market power and thus raise the offered refinance rates. We find that the indirect market power effect dominates. We use our model to study an alternative market design, in which loan originators post interest rates to a centralized market, and borrowers can lock in posted rates by choosing to refinance. We find, under specific assumptions, a centralized market for the refinance market can significantly increase refinancing activity by eliminating market power, even if we keep the refinancing costs unchanged.

Other Research

Mortgage Search Heterogeneity, Statistical Discrimination and Monetary Policy Transmission to Consumption (with Sumedh Ambokar)

In the US, half of all mortgage borrowers consider only one lender when refinancing. We investigate how statistical discrimination by lenders, a tool that separates borrowers who differ in search intensity, affects welfare and monetary policy transmission to consumption. We build and calibrate a general equilibrium model of the mortgage market with two types of borrowers who differ in the number of lenders they meet. Statistical discrimination based on the relative mass of the two types at any observable current mortgage rate and home equity level results in relatively higher offer rates for non-shoppers. Higher offer rates reduce the incentive to refinance. Repeated refinancing increases the separation between the two types, reinforcing the mechanism. Statistical discrimination carries a significant welfare cost ($3,300) for a borrower, accounting for two-thirds of the total difference in welfare between the two types. Two ways of increasing mortgage search, an explicit goal of the CFPB, have opposite effects on welfare. If every third non-shopper meets one more lender, the welfare cost becomes two-thirds. However, this cost quadruples if, instead, every shopper meets one more lender. Statistical discrimination halves non-shoppers’ consumption response to a monetary policy shock but does not increase shoppers’ response. Thus, it reduces aggregate consumption response by a third. Hence, the subtle ability to statistically discriminate is highly relevant for policymaking.

 

Liquidity Management, Banks vs. Shadow Banks

How does the banking sector respond to a change in discount window rate while shadow banking coexists with a regulated banking sector? This paper studies a dynamic equilibrium model in which banks and shadow banks provide illiquid loans by issuing short-term bonds. Banks have access to the discount window to manage the liquidity risk while regulated by the liquidity requirement. Shadow banks face the same risk, but they can only manage the liquidity shock by investing enough in the safe assets. Changing the discount window rate changes the relative advantage of banks compared to shadow banks, in terms of having access to the discount window. Depending on the size of the shadow banking system, effectiveness of the role of federal reserve in changing the overnight rates may be dampened as shadow banks and banks can become interchangeable.

Teaching Experience

Ph.D.

Econometrics, Department of Economics, University of Pennsylvania, TA for Francis X. Diebold (Spring 2016)

MBA

Corporate Finance, The Wharton School, University of Pennsylvania, TA for Michael Roberts and Jules H. van Binsbergen (Fall 2015)

Managerial Economics, McCombs School of Business, University of Texas-Austin, TA for Michael Sadler (Spring 2014)

Undergraduate

Corporate Finance, The Wharton School, University of Pennsylvania, TA for Jeffrey F. Jaffe (Spring 2015)

Intermediate Macroeconomics, UPenn, Department of Economics, TA for Dirk Krueger (Fall 2015)

Other Information

Honors, Scholarships, and Fellowships:

Hiram C. Haney Fellowship Award (Best Third-Year Research Paper at UPenn), 2018

Princeton Initiative Travel Grant, 2016

Macro Finance Society 8th Workshop, Travel Grant, 2016

HAND Foundation Scholarship, 2014 

Gold Medalist, National Economics Olympiad, Iran, 2008

Ranked 1st (among nearly 10,000 candidates), National Masters Degree Entrance Examination in Economics, Iran, 2008    

 

 

 

 

Interests

Empirical IO, Corporate Finance, Real Estate, Banking

Phone

+1(512)217-6110

Email

kians@sas.upenn.edu

Download CV

Advisors

Aviv Nevo

Guillermo Ordonez

References

 

Aviv Nevo (Advisor)

George A. Weiss and Lydia Bravo Weiss University Professor,

Department of Economics and The Wharton School, University of Pennsylvania

Email: anevo@wharton.upenn.edu

Phone: +1 (215) 898-0499

 

Guillermo Ordonez (Advisor)

Associate Professor of Economics, 

Department of Economics, University of Pennsylvania

Email:  ordonez@econ.upenn.edu

Phone: +1 (215) 898-1875

 

Benjamin J. Keys

Associate Professor of Real Estate, 

Real Estate Department, The Wharton School, University of Pennsylvania

Phone: +1 (215) 746-1253

Job Market Candidate Status
I am on the job market and I will be available for interviews at the 2020 ASSA Annual Meeting in San Diego