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Working Paper
Automated Credit Limit Increases and Consumer Welfare
In the United States, credit card companies frequently use machine learning algorithms to proactively raise credit limits for borrowers. In contrast, an increasing number of countries have begun to prohibit credit limit increases initiated by banks rather than consumers. In this paper, we exploit detailed regulatory micro data to examine the extent to which bank-initiated credit limit increases are directed towards individuals with revolving debt. We then develop a model that captures the costs and benefits of regulating proactive credit limit increases, which we use to quantify their ...
Working Paper
Biased Shorts: Short sellers’ Disposition Effect and Limits to Arbitrage
We investigate whether short sellers are subject to the disposition effect using a novel dataset that allows to identify the closing of short positions. Consistent with the disposition effect, short sellers are more likely to close a position the higher their capital gains. Furthermore, stocks with high short sale capital gains experience negative returns, suggesting that their disposition effect has an effect on stock prices. A trading strategy based on this finding achieves significant three-factor alphas. Overall, short sellers? behavioral biases limit their ability to arbitrage away the ...