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Articles 1 - 19 of 19

Full-Text Articles in Social and Behavioral Sciences

The Term Structure Of Interest Rates In A Dsge Model With Recursive Preferences, Jules Van Binsbergen, Jesús Fernández-Villaverde, Ralph Koijen, Juan Rubio-Ramírez Nov 2012

The Term Structure Of Interest Rates In A Dsge Model With Recursive Preferences, Jules Van Binsbergen, Jesús Fernández-Villaverde, Ralph Koijen, Juan Rubio-Ramírez

Finance Papers

A dynamic stochastic general equilibrium (DSGE) model in which households have Epstein and Zin recursive preferences is solved with perturbation. The parameters governing preferences and technology are estimated by maximum likelihood using macroeconomic data and the term structure of interest rates. The estimates imply a large risk aversion, an elasticity of intertemporal substitution higher than one, and substantial adjustment costs. Furthermore, the paper identifies the tensions within the model by estimating it on subsets of these data. The analysis concludes by pointing out potential extensions that may improve the model's fit.


What Do You Think Would Make You Happier? What Do You Think You Would Choose?, Daniel J. Benjamin, Ori Heffetz, Miles S. Kimball, Alex Rees-Jones Aug 2012

What Do You Think Would Make You Happier? What Do You Think You Would Choose?, Daniel J. Benjamin, Ori Heffetz, Miles S. Kimball, Alex Rees-Jones

Finance Papers

Would people choose what they think would maximize their subjective well-being (SWB)? We present survey respondents with hypothetical scenarios and elicit both choice and predicted SWB rankings of two alternatives. While choice and predicted SWB rankings usually coincide in our data, we find systematic reversals. We identify factors—such as predicted sense of purpose, control over one's life, family happiness, and social status—that help explain hypothetical choice controlling for predicted SWB. We explore how our findings vary by SWB measure and by scenario. Our results have implications regarding the use of SWB survey questions as a proxy for ...


The Market Price Of Fiscal Uncertainty, Mariano M. Croce, Thien Tung Nguyen, Lukas Schmid Jul 2012

The Market Price Of Fiscal Uncertainty, Mariano M. Croce, Thien Tung Nguyen, Lukas Schmid

Finance Papers

Recent fiscal interventions have raised concerns about US public debt, future distortionary tax pressure, and long-run growth potential. We explore the long-run implications of public financing policies aimed at short-run stabilization when: (i) agents are sensitive to model uncertainty, as in Hansen and Sargent (2007), and (ii) growth is endogenous, as in Romer (1990). We find that countercyclical deficit policies promoting short-run stabilization reduce the price of model uncertainty at the cost of significantly increasing the amount of long-run risk. Ultimately these tax policies depress innovation and long-run growth and may produce welfare losses.


Financing Firms In India, Franklin Allen, Rajesh Chakrabarti, Sankar De, Jun "Qj" Qian Jul 2012

Financing Firms In India, Franklin Allen, Rajesh Chakrabarti, Sankar De, Jun "Qj" Qian

Finance Papers

With extensive cross-country datasets and India firm samples, as well as our own surveys of small and medium firms, we examine the legal and business environments, financing channels, and growth patterns of different types of firms in India. Despite the English common-law origin and a British-style judicial system, Indian firms face weak investor protection in practice and poor institutions characterized by corruption and inefficiency. Alternative finance, including financing from all nonbank, nonmarket sources, and generally backed by nonlegal mechanisms, constitutes the most important form of external finance. Bank loans provide the second most important external financing source. Firms with access ...


On The Timing And Pricing Of Dividends, Jules H. Van Binsbergen, Michael W. Brandt, Ralph Koijen Jun 2012

On The Timing And Pricing Of Dividends, Jules H. Van Binsbergen, Michael W. Brandt, Ralph Koijen

Finance Papers

We present evidence on the term structure of the equity premium. We recover prices of dividend strips, which are short-term assets that pay dividends on the stock index every period up to period T and nothing thereafter. It is short-term relative to the index because the index pays dividends in perpetuity. We find that expected returns, Sharpe ratios, and volatilities on short-term assets are higher than on the index, while their CAPM betas are below one. Short-term assets are more volatile than their realizations, leading to excess volatility and return predictability. Our findings are inconsistent with many leading theories.


Heterogeneity In Neighborhood-Level Price Growth In The United States, 1993–2009, Fernando V. Ferreira, Joseph Gyourko May 2012

Heterogeneity In Neighborhood-Level Price Growth In The United States, 1993–2009, Fernando V. Ferreira, Joseph Gyourko

Finance Papers

Examination of detailed geographical information on U.S. housing transactions from 1993 to 2009 find much heterogeneity at the neighborhood level in when the recent boom began, how big the initial jumps in price growth were, how long the booms lasted, and what types of neighborhoods boomed first. There is less neighborhood-level heterogeneity in when the bust began and in aggregate price appreciation during the boom. This heterogeneity suggests that there was no one dominant cause of the boom. We also comment on how very local data may help understand the role of contagion, among other housing market phenomena.


Unpacking Team Familiarity: The Effects Of Geographic Location And Hierarchical Role, Bradley Staats May 2012

Unpacking Team Familiarity: The Effects Of Geographic Location And Hierarchical Role, Bradley Staats

Finance Papers

Examination of team productivity finds that team familiarity, i.e., individuals' prior shared work experience, can positively impact the efficiency and quality of team output. Despite the attention given to team familiarity and its contingencies, prior work has focused on whether team members have worked together, not on which team members have worked together, and under what conditions. In this paper, I parse overall team familiarity to consider effects of geographic location and the hierarchical roles of team members. Using data on all software-development projects completed over 3 years at a large Indian firm in the global outsourced software services ...


The Short Of It: Investor Sentiment And Anomalies, Robert F. Stambaugh, Jianfeng Yu, Yu Yuan May 2012

The Short Of It: Investor Sentiment And Anomalies, Robert F. Stambaugh, Jianfeng Yu, Yu Yuan

Finance Papers

This study explores the role of investor sentiment in a broad set of anomalies in cross-sectional stock returns. We consider a setting in which the presence of market-wide sentiment is combined with the argument that overpricing should be more prevalent than underpricing, due to short-sale impediments. Long-short strategies that exploit the anomalies exhibit profits consistent with this setting. First, each anomaly is stronger (its long-short strategy is more profitable) following high levels of sentiment. Second, the short leg of each strategy is more profitable following high sentiment. Finally, sentiment exhibits no relation to returns on the long legs of the ...


Global, Local, And Contagious Investor Sentiment, Malcolm Baker, Jeffery Wurgler, Yu Yuan May 2012

Global, Local, And Contagious Investor Sentiment, Malcolm Baker, Jeffery Wurgler, Yu Yuan

Finance Papers

We construct investor sentiment indices for six major stock markets and decompose them into one global and six local indices. In a validation test, we find that relative sentiment is correlated with the relative prices of dual-listed companies. Global sentiment is a contrarian predictor of country-level returns. Both global and local sentiment are contrarian predictors of the time-series of cross-sectional returns within markets: When sentiment is high, future returns are low on relatively difficult to arbitrage and difficult to value stocks. Private capital flows appear to be one mechanism by which sentiment spreads across markets and forms global sentiment.


Are Stocks Really Less Volatile In The Long Run?, Ľuboš Pástor, Robert F. Stambaugh Apr 2012

Are Stocks Really Less Volatile In The Long Run?, Ľuboš Pástor, Robert F. Stambaugh

Finance Papers

According to conventional wisdom, annualized volatility of stock returns is lower over long horizons than over short horizons, due to mean reversion induced by return predictability. In contrast, we find that stocks are substantially more volatile over long horizons from an investor's perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance but is more than offset by various uncertainties faced by the investor. The same uncertainties reduce desired stock allocations of long-horizon investors contemplating target-date funds.


Now It's Personal: Offshoring And The Shifting Skill Composition Of The U.S. Information Technology Workforce, Prasanna Tambe, Lorin M. Hitt Apr 2012

Now It's Personal: Offshoring And The Shifting Skill Composition Of The U.S. Information Technology Workforce, Prasanna Tambe, Lorin M. Hitt

Finance Papers

We combine new information technology (IT) offshoring and IT workforce microdata to investigate how the use of IT offshore captive centers is affecting the skill composition of the U.S. onshore IT workforce. The analysis is based on the theory that occupations involving tasks that are “tradable,” such as tasks that require little personal communication or hands-on interaction with U.S.-based objects, are vulnerable to being moved offshore. Consistent with this theory, we find that firms that have offshore IT captive centers have 8% less of their onshore IT workforce involved in tradable occupations; those without offshore captive centers ...


The Real Effects Of Financial Markets: The Impact Of Prices On Takeovers, Alex Edmans, Itay Goldstein, Wei Jiang Jan 2012

The Real Effects Of Financial Markets: The Impact Of Prices On Takeovers, Alex Edmans, Itay Goldstein, Wei Jiang

Finance Papers

Using mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the “trigger effect”). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the “anticipation effect”). Our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation. These findings imply that financial markets have real effects: They impose discipline on managers by triggering takeover threats.


Dynamic Ceo Compensation, Alex Edmans, Xavier Gabaix, Tomasz Sadzik, Yuliy Sannikov Jan 2012

Dynamic Ceo Compensation, Alex Edmans, Xavier Gabaix, Tomasz Sadzik, Yuliy Sannikov

Finance Papers

We study optimal compensation in a dynamic framework where the CEO consumes in multiple periods, can undo the contract by privately saving, and can temporarily inflate earnings. We obtain a simple closed-form contract that yields clear predictions for how the level and performance sensitivity of pay vary over time and across firms. The contract can be implemented by escrowing the CEO's pay into a “Dynamic Incentive Account” that comprises cash and the firm's equity. The account features state-dependent rebalancing to ensure its equity proportion is always sufficient to induce effort, and time-dependent vesting to deter short-termism.


Are Speculators Informed?, Krista Schwarz Jan 2012

Are Speculators Informed?, Krista Schwarz

Finance Papers

The positions of hedgers and speculators are correlated with returns in a number of futures markets, but there is much debate as to the interpretation of such a relationship—whether it reflects private information, liquidity, or trend-chasing behavior. This paper studies the relationship between positioning of hedgers and speculators and returns in equity futures markets. I propose a novel test of the private information hypothesis: analyzing the effect of public announcements about futures positions on prices, using high-frequency data in short windows around the announcements. I find that the revelation of speculators' positions is informative to investors more broadly, supporting ...


Do Firms Adjust Their Timely Loss Recognition In Response To Changes In The Banking Industry?, Todd A. Gormley, Bong Hwan Kim, Xiumin Martin Jan 2012

Do Firms Adjust Their Timely Loss Recognition In Response To Changes In The Banking Industry?, Todd A. Gormley, Bong Hwan Kim, Xiumin Martin

Finance Papers

This paper investigates the impact of changes in the banking sector on firms’ timely recognition of economic losses. In particular, we focus on the entry of foreign banks into India during the 1990s, which likely causes an exogenous increase in lender demand for timely loss recognition. Analyzing variation in both the timing and the location of the new foreign banks’ entries, we find that foreign bank entry is associated with more timely loss recognition and this increase is positively related to a firm's subsequent debt levels. The change appears driven by a shift in firms’ incentives to supply additional ...


Contract Pricing In Consumer Credit Markets, Liran Einav, Mark Jenkins, Jonathan Levin Jan 2012

Contract Pricing In Consumer Credit Markets, Liran Einav, Mark Jenkins, Jonathan Levin

Finance Papers

We analyze subprime consumer lending and the role played by down payment requirements in screening high-risk borrowers and limiting defaults. To do this, we develop an empirical model of the demand for financed purchases that incorporates both adverse selection and repayment incentives. We estimate the model using detailed transaction-level data on subprime auto loans. We show how different elements of loan contracts affect the quality of the borrower pool and subsequent loan performance. We also evaluate the returns to credit scoring that allows sellers to customize financing terms to individual applicants. Our approach shows how standard econometric tools for analyzing ...


Fiscal Policies And Asset Prices, Mariano M. Croce, Howard Kung, Thien Tung Nguyen, Lukas Schmid Jan 2012

Fiscal Policies And Asset Prices, Mariano M. Croce, Howard Kung, Thien Tung Nguyen, Lukas Schmid

Finance Papers

The surge in public debt triggered by the financial crisis has raised uncertainty about future tax pressure and economic activity. We examine the asset pricing effects of fiscal policies in a production-based general equilibrium model in which taxation affects corporate decisions by: (1) distorting profits and investment; (2) reducing the cost of debt through a tax shield; and (3) depressing productivity growth. In settings with recursive preferences, these three tax-based channels generate sizable risk premia, making tax uncertainty a first-order concern. We document further that corporate tax smoothing can substantially alter the effects of public expenditure shocks.


Benefiting From Misfortune: When Harmless Actions Are Judged To Be Morally Blameworthy, Yoel Inbar, David A. Pizarro, Fiery Cushman Jan 2012

Benefiting From Misfortune: When Harmless Actions Are Judged To Be Morally Blameworthy, Yoel Inbar, David A. Pizarro, Fiery Cushman

Finance Papers

Dominant theories of moral blame require an individual to have caused or intended harm. However, the current four studies demonstrate cases where no harm is caused or intended, yet individuals are nonetheless deemed worthy of blame. Specifically, individuals are judged to be blameworthy when they engage in actions that enable them to benefit from another’s misfortune (e.g., betting that a company’s stock will decline or that a natural disaster will occur). Evidence is presented suggesting that perceptions of the actor’s wicked desires are responsible for this phenomenon. It is argued that these results are consistent with ...


Financial Expertise As An Arms Race, Vincent Glode, Richard C. Green, Richard Lowery Jan 2012

Financial Expertise As An Arms Race, Vincent Glode, Richard C. Green, Richard Lowery

Finance Papers

We show that firms intermediating trade have incentives to overinvest in financial expertise. In our model, expertise improves firms’ ability to estimate value when trading a security. Expertise creates asymmetric information, which, under normal circumstances, works to the advantage of the expert as it deters opportunistic bargaining by counterparties. This advantage is neutralized in equilibrium, however, by offsetting investments by competitors. Moreover, when volatility rises the adverse selection created by expertise triggers breakdowns in liquidity, destroying gains to trade and thus the benefits that firms hope to gain through high levels of expertise.