Essays in Income Risk and Household Finance
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Tiurina-mtiu-PhD-Management-2025-thesis.pdf
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14.91 MB
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Author(s)
Tiurina, Mariia
Advisor(s)
Schmidt, Lawrence D. W.
Parker, Jonathan A.
Date Issued
February 2026
Publisher
Massachusetts Institute of Technology
Abstract
This thesis comprises three chapters on income risk and household finance. The first chapter studies the degree of income diversification within dual-earner households and its effect on financial risk-taking. Using data on family links, income dynamics, and asset holdings in Norway, I estimate that couples experience a 5 percent higher total variance in permanent income shocks compared to their variance prior to couple formation and to that of matched single individuals. This increase is partially driven by a 30 percent higher covariance in partners’ permanent income shocks. The effect is more pronounced for younger couples and those with children, and remains positive across groups defined by age, parental status, and education—but disappears for the wealthiest couples. I further study changes in total risky asset holdings following couple formation and find a 2 percentage-point decline in the risky asset share, driven by a 5 percentage-point drop in participation. While much of this effect is attributed to real estate purchases, the decline in the conditional risky share is larger among couples with more highly correlated income shocks. Using an instrumental variables approach, I show that an increase in the covariance of permanent shocks leads to a significant decline in both participation and risky share. However, given the magnitude of the observed covariance increase, the overall effect is modest. The second chapter consists of a joint work with Magne Mogstad, Lawrence D. W. Schmidt, Mariel Schwartz, Ola Vestad, and Nicholas Von Turkovich. Using administrative data from Norway and the US, we study the idiosyncratic and aggregate risks faced by wealthy households and their connection with asset demand. Consistent with data from other countries, including the US, the wealthiest 1% collectively own more than half of total household wealth in liquid, risky assets. However, these sizable liquid positions remain smaller than the value of private businesses which are actively managed by these households, implying that wealthy households’ income and wealth face larger exposures to both firm-specific and aggregate risks than other households in the economy. Motivated by a growing literature finding a large quantitative role of demand shocks across heterogeneous investors for stock prices, we argue for a novel, “human wealth" channel in which self-insurance of wealthy investors against nondiversifiable risk can generate large, cyclical changes in demand for stocks and, in turn, drive variation in return predictability. Empirically, we find a very strong link between shocks to wealthy households’ private businesses and demand for liquid financial assets, consistent with our proposed human wealth channel having important quantitative implications for asset price dynamics. The third chapter studies the effect of credit-access restrictions on the financial outcomes of subprime consumers who faced negative income shocks in Arkansas, the state with the lowest usury cap of 17 percent. Because of this cap, payday lenders and consumer-finance companies do not operate in Arkansas, whereas they operate in all six neighboring states (Missouri, Tennessee, Mississippi, Louisiana, Texas, and Oklahoma). To identify income shocks, I assemble tornado-location data and link them to the ZIP codes where households reside. Using the difference-in-differences approach, I find that borrowers in bordering ZIP codes are less likely to default on mortgage debt and exhibit a 30 percent smaller decline in credit scores in the post-disaster period relative to borrowers in central ZIP codes. I do not find any effect for prime borrowers. The result is consistent with adverse effects of credit rationing following consumer-protection laws.
MIT Department
Sloan School of Management
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