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Categorical Thinking about Interest Rates
Kelly Shue
Many borrowers rush to lock in long-term loans the moment the Fed signals rate cuts, expecting long-term rates to rise in step with short-term ones. New research shows this belief is mistaken: long-term rates already incorporate expectations about future short-term moves, so the rush is based on a misunderstanding. The misconception is widespread enough among households, firms, and even professional forecasters to measurably undercut the effectiveness of monetary policy.
Pricing Government Contract Risk Premia: Evidence from the 2025 Federal Lease Terminations
Cameron LaPoint
Federal office lease cancellations send ripples far beyond the buildings themselves. Recent research shows that the 2025 federal lease terminations drove up borrowing costs across commercial mortgage-backed securities markets as investors priced in higher risk — with projected office value losses that could reverberate through the broader economy for years to come.
Emotions and Subjective Crash Beliefs
William Goetzmann
Investors have consistently overestimated the probability of a catastrophic stock market crash and new research suggests their emotions are a big part of why. By analyzing the written narratives investors provide alongside their crash probability estimates, the study finds that fear and negative sentiment drive subjective crash beliefs well beyond what market fundamentals would justify. The research draws on more than two decades of data from the Shiller Investor Confidence Surveys.
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