Julio Gálvez

Contact Information:

Casado del Alisal 5,
Madrid 28014 ES

(+34) 661 78 40 67

Welcome to my website! I am a PhD candidate in Economics at CEMFI
. My research covers topics in the fields of financial economics, applied econometrics and macroeconomics.


Working Papers

Household portfolio choices and nonlinear income risk (Paper coming soon.)

I consider the impact of earnings asymmetries and heterogeneity in income persistences, which are captured by flexible stochastic labor income processes, on household asset allocation decisions. I motivate the empirical analysis by studying the implications of nonlinear income risk in a standard portfolio choice model. I find that nonlinear earnings processes reveal qualitatively different implications on household investment decisions than a canonical linear earnings process. I then develop a flexible, semi-structural method to empirically quantify the transmission of latent, time-varying income shocks to household stock market participation and portfolio choice decisions. Using the 1999 to 2009 waves of the PSID, I find that differences in income uncertainty across households drive heterogeneous participation and portfolio allocation responses. Specifically, young low-income, low-wealth households, are the most (least) likely to participate when they receive a very positive (negative) income shock, with the probability increasing (decreasing) by as much as 10 percent. Similarly, market participants from these households increase (decrease) their portfolio allocation to stocks by as much as 7 percentage points when they receive a very positive (negative) income shock.

Distributional linkages between European sovereign bond and bank asset returns [PDF] (with Javier Mencía)

We analyse the dependence between sovereign bonds' and banks' asset return distributions with a large panel of European data from 2001 to 2013. Using quantile regressions, we identify nonlinear contemporaneous and lagged dependence. As a result, shocks to crisis-hit sovereign bonds have contemporaneous effects on the whole distribution of banks' returns,  as well as a persistent impact in the tails. Our results offer relevant insights about  the relationship between banking and sovereign crises. In particular, during the recent  financial crisis, banks' asset return distributions have lower means and fatter tails  than in the absence of a simultaneous sovereign crisis.

Hedge funds and asset markets: tail or two-state dependence? [PDF] (with Julio A. Crego)

We reconcile opposing evidence found in previous literature about the tail neutrality of market-neutral hedge funds (MNHFs) using US data from 2003 to 2013. In particular, we estimate a regime-switching copula model to show the existence of a common macroeconomic regime that affects the distributions of both MNHF returns and the market index; this, in turn, creates a non-linear dependence, which can be confounded with tail dependence. Moreover, we provide evidence of positive (negative) linear correlation between the market index and MNHFs during bull (bear) periods that coincide with the US business cycle. We show with simulated data from our model that sample tail-based tests do not reject the tail dependence hypothesis, even if the tail dependence parameter is set to zero.

Work in Progress

Household portfolio choices and individual and family labor supply