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An Empirical Study Of The Sentiment Capital Asset Pricing Model, Soroush Ghazi, Mark Schneider 2020 University of Alabama - Tuscaloosa

An Empirical Study Of The Sentiment Capital Asset Pricing Model, Soroush Ghazi, Mark Schneider

ESI Working Papers

What is market sentiment? This paper takes a new approach to this question and de- rives a formula for market sentiment as a function of the risk-free rate, the price/dividend ratio, and the conditional stock market volatility. The formula is derived from a representative agent with a prospect theory probability weighting function. We estimate the model and find that our sentiment measure correlates positively with the leading sentiment indexes. The model matches the equity premium while generating a low and stable risk-free rate with low risk aversion. We also apply the model to explain other anomalies for the aggregate ...


Categorical Salience Theory, Mark Schneider, Cary Deck, Patrick DeJarnette 2020 Chapman University

Categorical Salience Theory, Mark Schneider, Cary Deck, Patrick Dejarnette

ESI Working Papers

Monetary lotteries are the overwhelmingly predominant tool for understanding decisions under risk. However, many real-world decisions concern multidimensional out- comes involving different goods. Recent studies have tested whether people treat multidimensional risky choices in the same manner as unidimensional monetary lotteries and found that choices over consumer goods are less risk-averse and more consistent with expected utility theory than choices over monetary lotteries. While these puzzling results cannot be explained by any standard model of decision making, we demonstrate that these findings are predicted by a salience-based model of category-dependent preferences that also explains the classic anomalies for choices under ...


A Capital Asset Pricing Model With Market Sentiment, Mark Schneider, Manuel A. Nunez 2020 Chapman University

A Capital Asset Pricing Model With Market Sentiment, Mark Schneider, Manuel A. Nunez

ESI Working Papers

We derive a capital asset pricing model with market sentiment from a representative agent that exhibits two basic behavioral biases – ambiguity aversion and positive skewness preference. The asset pricing formula generalizes the classical CAPM by accounting for model uncertainty, positive skewness, disaster risk, and market sentiment, thereby linking four strands of the literature. We apply the Market Sentiment CAPM to provide a unified explanation for the beta anomaly and three other market anomalies, and to predict how they are affected by sentiment. The Market Sentiment CAPM provides a theoretical foundation for the pricing of sentiment in the cross-section of returns.


Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González 2020 Chapman University

Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González

ESI Working Papers

We study several solutions to shirking in teams that trigger social incentives by reshaping the workplace social context. Using an experimental design, we manipulate social pressure at work by varying the type of workplace monitoring and the extent to which employees engage in social interaction. This design allows us to assess the effectiveness as well as the popularity of each solution. Despite similar effectiveness in boosting productivity across solutions, only organizational systems involving social interaction (via chat) were at least as popular as a baseline treatment. This suggests that any solution based on promoting social interaction is more likely to ...


Essays On The Application Of The Machine Learning Methods In Finance And Policy Evaluation, Olga Guska 2020 City University of New York (CUNY)

Essays On The Application Of The Machine Learning Methods In Finance And Policy Evaluation, Olga Guska

All Dissertations, Theses, and Capstone Projects

In the age when "Big Data" is becoming almost a household word, such abundance of information in different forms and representations can be of a great help for one's decision-making let it be a trader betting on a stock, or a policy-maker assessing the potential impact of proposed regulation. Whereas traditional economic research is primarily based on the use of numerical data continuous or discrete, there is a great deal of useful information that can be extracted from text data. Such information can power novel identification strategies or help perceive solutions from a different angle, but observed volumes of ...


Adam Smith’S Theory Of Value: A Mathematical Statement Of His Market Price Discovery Process, Sabiou M. Inoua, Vernon L. Smith 2020 Chapman University

Adam Smith’S Theory Of Value: A Mathematical Statement Of His Market Price Discovery Process, Sabiou M. Inoua, Vernon L. Smith

ESI Working Papers

The relevance of Adam Smith for understanding human morality and sociality is generally accepted; witness the growing interest that his work is stimulating among scholars of various academic backgrounds (philosophers, political theorists, sociologists, economists). But, paradoxically, Adam Smith’s theory of economic value enjoys a less prominent stature today among economists, who, while they view him as the ‘father of modern economics’, considered him more as having had the right intuitions about a market economy than as having developed the right concepts and the technical tools for studying it. Yet the neoclassical tradition failed to provide a satisfactory theory of ...


Working Too Much For Too Little: Stochastic Rewards Cause Work Addiction, Brice Corgnet, Simon Gaechter, Roberto Hernán González 2020 Chapman University

Working Too Much For Too Little: Stochastic Rewards Cause Work Addiction, Brice Corgnet, Simon Gaechter, Roberto Hernán González

ESI Working Papers

People are generally assumed to shy away from activities generating stochastic rewards, thus re-quiring extra compensation for handling any additional risk. In contrast with this view, neurosci-ence research with animals has shown that stochastic rewards may act as a powerful motivator. Applying these ideas to the study of work addiction in humans, and using a new experimental paradigm, we demonstrate how stochastic rewards may lead people to continue working on a re-petitive and effortful task even after monetary compensation becomes saliently negligible. In line with our hypotheses, we show that persistence on the work task is especially pronounced when the ...


Comovement And Instability In Cryptocurrency Markets, Pierangelo De Pace, Jayant Rao 2020 Pomona College

Comovement And Instability In Cryptocurrency Markets, Pierangelo De Pace, Jayant Rao

Pomona Economics

We analyze the correlations of daily price returns for nine major cryptocurrencies between April 2013 and November 2018 and estimate their evolution using bivariate and multivariate modelling approaches. We detect pronounced time variation and fid these correlations to be generally increasing between early 2017 and late 2018. We then adopt a right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior (statistical instability) in the time series of the Network Value to Transactions (NVT) ratio (a measure of the dollar value of cryptocurrency transaction activity relative to its network value) of six ...


Rationally Inattentive Savers And Monetary Policy Changes: A Laboratory Experiment, Andrea Civelli, Cary Deck, Antonella Tutino 2020 University of Arkansas, Fayetteville

Rationally Inattentive Savers And Monetary Policy Changes: A Laboratory Experiment, Andrea Civelli, Cary Deck, Antonella Tutino

ESI Working Papers

We study the response of consumption and saving decisions of rationally inattentive individuals to changes in monetary policy in the laboratory. First, we theoretically characterize the choices of a rationally inattentive agent processing information about the interest rate. Then, we design an experiment with induced inattention to test for the predictions of the model, contrasting them to the full information case. Consistent with the predictions, experimental subjects (a) increase attention when utility gains exceed cognitive costs of tracking the policy rate and decrease savings when their perceived economic outlook deteriorates; (b) respond to Delphic, but not Odyssean, forms of forward ...


What Is The Effect Of Social Capital On Community Resiliency Against Social Decay?, James Dail 2020 Claremont Colleges

What Is The Effect Of Social Capital On Community Resiliency Against Social Decay?, James Dail

CMC Senior Theses

This thesis builds off of the work of Robert Putnam and Charles Murray by using a fixed effects regression model and a first difference regression model to see if there is a relationship between the number of community institutions within a county and that county’s resiliency against social decay. Historically, it has been difficult to determine if there is a causal relationship in either direction between these variables because they are endogenous. That is, the underlying factors that determine whether a county will have low levels of social capital also determine whether the same county will have high levels ...


All Pay Quality-Bids In Score Procurement Auctions, Dan Kovenock, Jingfeng Lu 2020 Chapman University

All Pay Quality-Bids In Score Procurement Auctions, Dan Kovenock, Jingfeng Lu

ESI Working Papers

In this paper, we study score procurement auctions with all-pay quality bids. A supplier’s score is the difference between his quality and price bids. The supplier with the highest score wins and gets paid his own price bid. The procurer’s payoff is the difference between the winner’s quality and the procurer’s payments to the suppliers. Equilibrium quality and price bids are solved without first obtaining the corresponding equilibrium scores. We find that quality bids, the suppliers’ payoffs and the procurer’s payoff do not depend on whether price bids are made contingent on quality bids. Compared ...


Reconsidering Rational Expectations And The Aggregation Of Diverse Information In Laboratory Security Markets, Brice Corgnet, Cary Deck, Mark DeSantis, Kyle Hampton, Erik O. Kimbrough 2020 Emlyon Business School

Reconsidering Rational Expectations And The Aggregation Of Diverse Information In Laboratory Security Markets, Brice Corgnet, Cary Deck, Mark Desantis, Kyle Hampton, Erik O. Kimbrough

ESI Working Papers

The ability of markets to aggregate dispersed information is a cornerstone of economics and finance. In a seminal experiment, Plott and Sunder (1988) offer support for the rational expectations hypothesis. However, recent laboratory experiments have called into question the robustness of those initial results. In this paper, we offer the first attempt to directly replicate key findings of the original study. Failing to replicate their results, the post-study probability that market performance is better described by rational expectations than the prior information (Walrasian) model is low. Given this result, we introduce a new treatment that implements a market structure consistent ...


An Experimental Comparison Of News Vending And Price Gouging, Zuzana Brokesova, Cary Deck, Jana Peliova 2020 University of Economics in Bratislava

An Experimental Comparison Of News Vending And Price Gouging, Zuzana Brokesova, Cary Deck, Jana Peliova

ESI Working Papers

The newsvendor problem is a workhorse model in operation management research. We introduce a related game that operates in the price dimension rather than the inventory dimension: the price gouging game. Using controlled laboratory experiments, we compare news vending and price gouging behavior. We replicate the standard pull-to-center effect for news vending and find that the equivalent pattern occurs with price gouging. Further, we find that the pull-to-center is asymmetric both for newsvendors and price gougers. More broadly, the experimental results reveal that choices are similar across the theoretically isomorphic games, suggesting that observed behavior in newsvendor experiments is representative ...


The Doors Of Perception, Gary Charness, Alessandro Sontuoso 2019 University of California, Santa Barbara

The Doors Of Perception, Gary Charness, Alessandro Sontuoso

ESI Working Papers

We investigate how a player’s strategic behavior is affected by the set of notions she uses in thinking about the game, i.e., the “frame”. To do so, we consider matching games where two players are presented with a set of objects, from which each player must privately choose one (with the goal of matching the counterpart’s choice). We propose a novel theory positing that different player types are aware of different attributes of the strategy options, hence different frames; we then rationalize why differences in players’ frames may lead to differences in choice behavior. Unlike previous theories ...


Recessions Or Partisanship: What Explains Climate Skepticism In The U.S.?, Abhishek S. Sambatur 2019 DePauw University

Recessions Or Partisanship: What Explains Climate Skepticism In The U.S.?, Abhishek S. Sambatur

Undergraduate Economic Review

This paper investigates the variations in public mood pertaining to climate skepticism and attempts to empirically assess whether economic recessions or partisanship help explain aggregate-level trends and movements across a 16-year time horizon. Public survey data from the iPoll and Gallup Organization were used to construct the Climate Change Skeptic Index (CCSI) that served as a proxy to capture public opinion trends in skepticism across the U.S. A two-part vector autoregressive model suggests that while economic recessions might be causally linked to climate skepticism, partisanship plays a more influential role in explaining it over time. The key result is ...


Is Diamond A Resource Curse For Africa?, Karli Hamrick 2019 West Virginia Wesleyan College

Is Diamond A Resource Curse For Africa?, Karli Hamrick

Undergraduate Economic Review

This paper investigates the resource curse in diamond exporting industry in African countries. The empirical evidence about the “resource curse” is mixed in literature and almost none has been done regarding diamond. Our study aims to bridge that gap. The results suggest that diamond export is positively correlated with well-being in a group of African countries. In other words, the “resource curse” may not occur in diamond mining industry after the Kimberly Process (KP) was put in place in 2002. We argue that the KP serves as a good institution and has created good incentives for firms in the industry ...


A Transactive Energy Approach To Distribution System Design: Household Formulation, Swathi Battula, Leigh Tesfatsion, Zhaoyu Wang 2019 Iowa State University

A Transactive Energy Approach To Distribution System Design: Household Formulation, Swathi Battula, Leigh Tesfatsion, Zhaoyu Wang

Economics Working Papers

A household model is formulated to facilitate careful development and performance testing of bid-based transactive energy system (TES) designs with voluntary customer participation. The optimal general bid-function form for households with thermostatically controlled loads is derived from dynamic programming principles, based solely on general household thermal dynamic and welfare attributes. Quantitative forms are determined for these optimal bid functions, given quantitative forms for these attributes. These quantitative attributes are used to construct representative household types based on clusterings of correlated parameter values. Bid comparison, peak-load reduction, and load-matching test cases conducted for a 123-bus distribution system operating under a generic ...


Is Our Coal-Onial Era Ending Anytime Soon?, Hadiqa Faraz 2019 Williams College

Is Our Coal-Onial Era Ending Anytime Soon?, Hadiqa Faraz

Undergraduate Economic Review

In this paper, I estimate the long-run co-integrated relationship between energy demand and economic growth for 20 countries from the year 2000 to 2016. I use panel unit-root and heterogeneous panel co-integration tests to test for non-stationarity of the panels and to determine whether there is a long-run link between energy consumption and GDP per capita. The estimated model uses a first-difference OLS model to estimate income elasticity of energy demand; the empirical results of this model show that there is a long-run relationship between energy consumption per capita and GDP per capita. In the long-term, on average, with 1 ...


News-Driven Expectations And Volatility Clustering, Sabiou M. Inoua 2019 Chapman University

News-Driven Expectations And Volatility Clustering, Sabiou M. Inoua

ESI Working Papers

Financial volatility obeys two well-established empirical properties: it is fat-tailed (power-law distributed) and it tends to be clustered in time. Many interesting models have been proposed to account for these regularities, notably agent-based computational models, which typically invoke complicated mechanisms, however. It can be shown that trend-following speculation generates the power law in an intrinsic way. But this model cannot exaplain clustered volatility. This paper extends the model and offers a simple explanation for clustered volatility: the impact of exogenous news on traders’ expectations. Owing to the famous no-trade results, rational expectations, the dominant model of news-driven expectations, is hard ...


Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González 2019 Chapman University

Harnessing The Power Of Social Incentives To Curb Shirking In Teams, Brice Corgnet, Brian C. Gunia, Roberto Hernán González

ESI Working Papers

We study several solutions to shirking in teams that trigger social incentives by reshaping the workplace social context. Using an experimental design, we manipulate social pressure at work by varying the type of workplace monitoring and the extent to which employees engage in social interaction. This design allows us to assess the effectiveness as well as the popularity of each solution. Despite similar effectiveness in boosting productivity across solutions, only organizational systems involving social interaction (via chat) were at least as popular as a baseline treatment. This suggests that any solution based on promoting social interaction is more likely to ...


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