Welcome! I am an Assistant Professor at the Department of Finance at Bocconi University and IGIER affiliate. My research interests include empirical asset pricing, insurance markets, and behavioral finance.

Contact:

Office 2-d2-04Bocconi UniversityVia Roentgen, 1 Milano20136 ItalyE-mail: jakob.sorensen@unibocconi.it

Working Papers

Homeowners Insurance and the Transmission of Monetary Policy (2025)

with Dominik Damast and Christian Kubitza

Abstract:We document a novel transmission channel of monetary policy through the homeowners insurance market. On average, contractionary monetary policy shocks result in higher homeowners insurance prices. Using granular data on insurers' balance sheets, we show that this effect is driven by the interaction of financial frictions and the interest rate sensitivity of investment portfolios. Specifically, rate hikes reduce the market value of insurers' assets, tightening insurers' balance sheet constraints and increasing their shadow cost of capital. These frictions in insurnce supply amplify the effects of monetary policy on real estate and mortgage markets by making housing less affordable. We find that monetary policy shocks have a stronger impact on home prices and mortgage applications when local insurers are more sensitive to interest rates. This channel is particularly pronounced in areas where households face high climate risk exposure. Our findings highlight the role of insurance markets in amplifying macroeconomic shocks and the interconnections between homeowners insurance, residential real estate, and mortgage lending.

Insurers' Investments and Insurance Prices (2024)

R&R Management Science

with Benjamin Knox

Abstract:We develop a theory that connects insurance prices, insurance companies’ investment behavior, and equilibrium asset prices. Consistent with the model's key predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurers set lower prices on policies when expected investment returns are higher, both in the cross-section of insurance companies and in the time series. To help control for alternative explanations, we show our results hold both for life insurance companies and, using a novel approach, for property and casualty insurance companies. Our findings show that insurers' asset allocation and product pricing decisions are more connected than previously thought.

Credit Risk Neglect (2023)

Abstract:I present an equilibrium model for valuing corporate bonds and stocks to distinguish investors’ rational risk aversion from diagnostic expectations. Motivated by the model, I construct a novel empirical measure of credit market sentiment, denoted yield-for-risk, which measures the compensation investors require for credit risk in the cross-section of corporate bonds. I find evidence of diagnostic expectations in the form of risk neglect: Low yield-for-risk predicts low returns to credit and an inversion of the risk-return relationship among both corporate bonds and stocks. Firms exploit this effect by increasing their debt issuance when yield-for-risk is low, especially high-risk firms.
This paper was previously circulated under the title ”Risk Neglect in the Corporate Bond Market”

Trading-at-Settlement (2022)

with Søren Bundgaard Brøgger

Abstract:We study trading at settlement (TAS) in which orders are priced at a differential to the not-yet-known daily settlement price. In our model, TAS mitigates adverse selection for patient liquidity traders by “cream-skimming” uninformed order flow. Consistent with the model's key predictions, we find that (i) TAS volume correlates positively with uninformed demand; (ii) the distribution of TAS prices is tightly centered around zero; (iii) the TAS market is deeper than the regular market; (iv) liquidity in the regular market is low when the TAS market share is high; and (v) TAS orders placed early in the day have no impact on the daily settlement price, whereas TAS orders placed during the settlement window have a significant impact. Our results point to adverse selection as the main driver of trading costs.

Publications

Predictable Financial Crises (2022)

[PDF][Appendix][ReplicationKit]

with Samuel Hanson, Robin Greenwood, and Andrei Shleifer

Journal of Finance, 77(2), 863-921
Featured in voxeu.org, forbes.com, Børsen.dk (Danish), What Happens Next?, Rig På Viden (Danish).

Abstract:Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is associated with about a 40% probability of entering a financial crisis within the next three years. Our evidence cuts against the view that financial crises are unpredictable “bolts from the sky” and points toward the Kindleberger-Minsky view that crises are the byproduct of predictable, boom-bust credit cycles. The predictability we document favors macro-financial policies that “lean against the wind” of credit market booms.