Econometrics Commons^™

Speed Traps: Algorithmic Trader Performance Under Alternative Market Structures, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang

ESI Working Papers

Using laboratory experiments, we illustrate that trading algorithms that prioritize low latency pose certain pitfalls in a variety of market structures and configurations. In hybrid double auctions markets with human traders and trading agents, we find superior performance of trading agents to human traders in balanced markets with the same number of human and Zero Intelligence Plus (ZIP) buyers and sellers only, thus providing a partial replication of Das et al. (2001). However, in unbalanced markets and extreme market structures, such as monopolies and duopolies, fast ZIP agents fall into a speed trap and both human participants and slow ZIP …

A Theory Of Cultural Revivals, Murat Iyigun, Jared Rubin, Avner Seror

ESI Working Papers

Why do some societies have political institutions that support productively inefficient outcomes? And why does the political power of elites vested in these outcomes often grow over time, even when they are unable to block more efficient modes of production? We propose an explanation centered on the interplay between political and cultural change. We build a model in which cultural values are transmitted inter-generationally. The cultural composition of society, in turn, determines public good provision as well as the future political power of elites from different cultural groups. We characterize the equilibrium of the model and provide sufficient conditions for …

Data Driven Value-At-Risk Forecasting Using A Svr-Garch-Kde Hybrid, Marius Lux, Wolfgang Karl Hardle, Stefan Lessmann

Sim Kee Boon Institute for Financial Economics

Appropriate risk management is crucial to ensure the competitiveness of financial institutions and the stability of the economy. One widely used financial risk measure is value-at-risk (VaR). VaR estimates based on linear and parametric models can lead to biased results or even underestimation of risk due to time varying volatility, skewness and leptokurtosis of financial return series. The paper proposes a nonlinear and nonparametric framework to forecast VaR that is motivated by overcoming the disadvantages of parametric models with a purely data driven approach. Mean and volatility are modeled via support vector regression (SVR) where the volatility model is motivated …

Rhode Island Current Conditions Index -- November 2020, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

Data For "An Experimental Investigation Of Health Insurance Policy And Behavior", J. Dustin Tracy, Hillard Kaplan, Kevin James, Stephen Rassenti

ESI Data Sets

We introduce a new experimental approach to measuring the effects of health insurance policy alternatives on behavior and health outcomes over the life course. Cash-motivated subjects are placed in a virtual environment where they earn income and allocate it across multi-period lives. We compare behavior across age, income and insurance plans---one priced according to an individual's expected cost and the other uniformly priced through employer-implemented cost sharing. We find that 1) subjects in the employer-implemented plan purchased insurance at higher rates; 2) the employer-based plan reduced differences due to income and age; 3) subjects in the actuarial plan engaged in …

Persistent And Rough Volatility, Xiaobin Liu, Shuping Shi, Jun Yu

Research Collection School Of Economics

This paper contributes to an ongoing debate on volatility dynamics. We introduce a discrete-time fractional stochastic volatility (FSV) model based on the fractional Gaussian noise. The new model has the same limit as the fractional integrated stochastic volatility (FISV) model under the in-fill asymptotic scheme. We study the theoretical properties of both models and introduce a memory signature plot for a model-free initial assessment. A simulated maximum likelihood (SML) method, which maximizes the time-domain log-likelihoods obtained by the importance sampling technique, is employed to estimate the model parameters. Simulation studies suggest that the SML method can accurately estimate both models. …

Uniform Nonparametric Inference For Time Series, Jia Li, Zhipeng Liao

Research Collection School Of Economics

This paper provides the first result for the uniform inference based on nonparametric series estimators in a general time-series setting. We develop a strong approximation theory for sample averages of mixingales with dimensions growing with the sample size. We use this result to justify the asymptotic validity of a uniform confidence band for series estimators and show that it can also be used to conduct nonparametric specification test for conditional moment restrictions. New results on the validity of heteroskedasticity and autocorrelation consistent (HAC) estimators with increasing dimension are established for making feasible inference. An empirical application on the unemployment volatility …

Commodities Are Not Industries! A Value Chain Example, Randall W. Jackson, Patricio Aroca

Regional Research Institute Working Papers

Leontief and Stone both received Nobel Prizes in Economics for development and extension of input-output (IO) analysis, a framework that has gained little traction in mainstream U.S. economics. Although IO modeling has gained renewed focus in several problem domains, many contemporary economists eschew Stone's enhancements, resulting in inconsistent analytics, even in top economics journals. In this paper, we use an increasingly common approach to value chain analysis as one example that demonstrates such conceptual misunderstandings and by presenting properly formulated alternatives, we demonstrate the extent of the consequences of neglecting the Stone enhancements and important role of reproducing results.

Response To Exposure Draft On Bearer Plant: An Insight From Capture Theory, Yew Kuok Weng

Student Works (2020-2029)

Despite of steady progress in global convergence of accounting standards, certain International Accounting Standards (IAS) or International Financial Reporting Standard (IFRS) remain controversial and in need of major overhaul. IAS 41, Agriculture is one of the accounting standards for specialised industry where universal acceptance has not been gained among the stakeholders across the world. Particularly, the stakeholders connected to agricultural sector often express strong criticism towards the IAS 41, but little attention has been given to them by the international accounting standard setter. The long-waited revision of IAS 41 only took place after 14 years since the issuance of IAS …

Rhode Island Current Conditions Index -- October 2020, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

Forecasting Large Covariance Matrix With High-Frequency Data: A Factor Approach For The Correlation Matrix, Yingjie Dong, Yiu Kuen Tse

Research Collection School Of Economics

We apply the factor approach to the correlation matrix to forecast large covariance matrix of asset returns using high-frequency data, using the principal component method to model the underlying latent factors of the correlation matrix. The realized variances are separately forecasted using the Heterogeneous Autoregressive model. The forecasted variances and correlations are then combined to forecast large covariance matrix. Our proposed method is found to perform better in reporting smaller forecast errors than some selected competitors. Empirical application to a portfolio of 100 NYSE and NASDAQ stocks shows that our method provides lower out-of-sample realized variance in selecting global minimum …

Unconditional Quantile Regression With High-Dimensional Data, Yuya Sasaki, Takuya Ura, Yichong Zhang

Research Collection School Of Economics

Credible counterfactual analysis requires high-dimensional controls. This paper considers estimation and inference for heterogeneous counterfactual effects with high-dimensional data. We propose a novel doubly robust score for double/debiased estimation and inference for the unconditional quantile regression (Firpo, Fortin, and Lemieux, 2009) as a measure of heterogeneous counterfactual marginal effects. We propose a multiplier bootstrap inference for the Lasso double/debiased estimator, and develop asymptotic theories to guarantee that the bootstrap works. Simulation studies support our theories. Applying the proposed method to Job Corps survey data, we find that i) marginal effects of counterfactually extending the duration of the exposure to the …

Consistent Regional Commodity-By-Industry Input-Output Accounts, Randall Jackson, Péter Járosi

Regional Research Institute Working Papers

A long-standing regional science problem domain focuses on the identification of structural economic change. One of several approaches relies on the use of historical final demand series and a comparison of observed industry output to an estimate of what output would have been were economic structure static. However, these methods were first developed before the introduction of today’s commonly used commodity-by-industry (CxI)input-output (IO) accounting frameworks, and before the application of these methods to regional economies. Correctly formulating the supporting accounting structures for these analyses is essential, but can be challenging even for experienced an- alysts. Related textbook and journal articles …

An Experimental Investigation Of Health Insurance Policy And Behavior, J. Dustin Tracy, Hillard Kaplan, Kevin A. James, Stephen Rassenti

ESI Working Papers

We introduce a new experimental approach to measuring the effects of health insurance policy alternatives on behavior and health outcomes over the life course. Cash-motivated subjects are placed in a virtual environment where they earn income and allocate it across multi-period lives. We compare behavior across age, income and insurance plans—one priced according to an individual’s expected cost and the other uniformly priced through employer-implemented cost sharing. We find that 1) subjects in the employer-implemented plan purchased insurance at higher rates; 2) the employer-based plan reduced differences due to income and age; 3) subjects in the actuarial plan engaged in …

Adaptive Utility: Observing The Rate Of Adaptation In Happiness As Short Run Shifts Revert To Long Run Averages, Cameron Bellamoroso

Honors Thesis

In economics, human decision-making models are based on the utility, or happiness, a person experiences from the choices they make. Individual happiness is closely tied to societal and global well-being, a common political and and research goal. Psychological studies on happiness show that people generally return to an average level of happiness after experiencing a significant positive or negative change in their life, a process known as the ``hedonic treadmill.'' Empirically, it is often difficult for people to predict the specific utility they will experience from a given choice, leading them to maintain constant preferences for only frequently experienced options. …

An Elementary Humanomics Approach To Boundedly Rational Quadratic Models, Michael J. Campbell, Vernon L. Smith

ESI Working Papers

We take a refreshing new look at boundedly rational quadratic models in economics using some elementary modeling of the principles put forward in the book Humanomics by Vernon L. Smith and Bart J. Wilson. A simple model is introduced built on the fundamental Humanomics principles of gratitude/resentment felt and the corresponding action responses of reward /punishment in the form of higher/lower payoff transfers. There are two timescales: one for strictly self-interested action, as in economic equilibrium, and another governed by feelings of gratitude/resentment. One of three timescale scenarios is investigated: one where gratitude /resentment changes much more slowly than economic …

Intertemporal Choice Experiments And Large-Stakes Behavior, Diego Aycinena, Szabolcs Blazsek, Lucas Rentschler, Charles Sprenger

ESI Working Papers

Intertemporal choice experiments are increasingly implemented to make inference about discounting and marginal utility, yet little is known about the predictive power of resulting measures. This project links standard experimental choices to a decision on the desire to smooth a large-stakes payment | around 10% of annual income | through time. In a sample of around 400 Guatemalan Conditional Cash Transfer recipients, we find that preferences over large-stakes payment plans are closely predicted by experimental measures of patience and diminishing marginal utility. These represent the first findings in the literature on the predictive content of such experimentally elicited measures of …

Rhode Island Current Conditions Index -- September 2020, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

Analysis Of The Determinants Of Money Demand In South Africa: 1990-2019, Ali Kole, Hassan N. Wali, Alhassan M. Idris, Ismail H. Sanusi

Bullion

This study estimates real intermediate money demand (RM2) and real broad money demand (RM3) for South Africa from 1990 Q1 to 2019 Q4. The main objective of the study was to explore the relationship between money demand and its determinants in South Africa with specific emphasis on the long-run relationship and stability between RM2, RM3,and their determinants. Auto-regressive Distributed Lag (ARDL) bound test for cointegration model developed by Pesaran (2001) was employed. The results found that both RM2 and RM3 are cointegrated with inflation rate, interest rate, exchange rate,real GDP, and credit to the private sector in South Africa. Credit …

Universal Minimum Wage Is Not Suitable For Singapore, Zhengxiao Wu

Research Collection School Of Economics

In a commentary, SMU Senior Lecturer of Statistics Wu Zhengxiao examined the concept of a universal minimum wage, and discussed how it is not suitable for Singapore.

Essays On The Short-Term Impact Of Minimum Unit Pricing Policy In Scotland, Irena P. Xhurxhi

Dissertations, Theses, and Capstone Projects

This dissertation consists of two chapters, and it evaluates the short-term impact of Scotland’s Minimum Unit Pricing (MUP) policy on a variety of outcome measures. Excessive alcohol consumption has long been considered one of Scotland’s greatest public health challenges, and in an attempt to change this harmful relationship with alcohol, the Scottish Government proposed an alcohol strategy comprising of over 40 measures, a central part of which was the introduction of a statutory minimum price of 50 pence per unit (10ml/8gr) of alcohol known as Minimum Unit Pricing (MUP). This policy aims to reduce alcohol consumption, and in turn, alcohol …

Essays On Paid Sick Leave In The United States, Shaoying Ma

Dissertations, Theses, and Capstone Projects

This dissertation consists of two chapters.

Chapter 1 This study estimates the causal effect of access to paid sick leave on worker mobility, by exploiting variation in the implementation of local paid sick leave mandates over time in the U.S. I use May 2004 - June 2019 Current Population Survey (CPS) basic monthly data, and by taking a Difference-in-Differences approach, I find that the local mandates significantly reduce private sector employees' monthly job turnover. This study is, to the best of my knowledge, the first to present the effect of local paid sick leave mandates in the U.S. on worker …

Menu-Dependent Food Choices And Food Waste, Hongxing Liu, Joaquín Gómez-Miñambres, Danyi Qi

ESI Working Papers

We use a combination of randomized field experiments and online surveys to test how the menu design affects food choices and food waste. In our field experiment, participants face one of two menus: a narrow menu that only displays a small portion of food, or a broad menu that also contains bigger portions. While all options are equally available in both menus, they differ in how easy and fast the different choices can be made. Our results show that, compared to the broad menu, participants in the narrow menu ordered smaller portions of food. Importantly, food intake was similar across …

Maximum Likelihood Estimation For The Fractional Vasicek Model, Katsuto Tanaka, Weilin Xiao, Jun Yu

Research Collection School Of Economics

This paper estimates the drift parameters in the fractional Vasicek model from a continuous record of observations via maximum likelihood (ML). The asymptotic theory for the ML estimates (MLE) is established in the stationary case, the explosive case, and the boundary case for the entire range of the Hurst parameter, providing a complete treatment of asymptotic analysis. It is shown that changing the sign of the persistence parameter changes the asymptotic theory for the MLE, including the rate of convergence and the limiting distribution. It is also found that the asymptotic theory depends on the value of the Hurst parameter.

Estimation Of Conditional Average Treatment Effects With High-Dimensional Data, Qingliang Fan, Yu-Chin Hsu, Robert P. Lieli, Yichong Zhang

Research Collection School Of Economics

Given the unconfoundedness assumption, we propose new nonparametric estimators for the reduced dimensional conditional average treatment effect (CATE) function. In the first stage, the nuisance functions necessary for identifying CATE are estimated by machine learning methods, allowing the number of covariates to be comparable to or larger than the sample size. This is a key feature since identification is generally more credible if the full vector of conditioning variables, including possible transformations, is high-dimensional. The second stage consists of a low-dimensional kernel regression, reducing CATE to a function of the covariate(s) of interest. We consider two variants of the estimator …

A Notion Of Prominence For Games With Natural-Language Labels, Alessandro Sontuoso, Sudeep Bhatia

ESI Working Papers

We study games with natural-language labels (i.e., strategic problems where options are denoted by words), for which we propose and test a measurable characterization of prominence. We assume that – ceteris paribus – players find particularly prominent those strategies that are denoted by words more frequently used in their everyday language. To operationalize this assumption, we suggest that the prominence of a strategy-label is correlated with its frequency of occurrence in large text corpora, such as the Google Books corpus (“n-gram” frequency). In testing for the strategic use of word frequency, we consider experimental games with different incentive structures (such …

Trust And Trustworthiness In Procurement Contracts With Retainage, Matthew J. Walker, Elena Katok, Jason Shachat

ESI Working Papers

In complex procurement projects, it is difficult to write enforceable contracts that condition price upon quality. Supplier non-performance becomes an acute risk, particularly when there is intense competition for the contract. An established incentive mechanism used to mitigate the problem of supplier non-performance is retainage, in which the buyer sets aside a portion of the purchase price. After project completion, the buyer determines the amount of retainage that is released to the seller, considering any defects that arise. While generally a feasible contract form to implement, the practical difficulties in assessing completion introduce a moral hazard for the buyer. We …

The Impact Of The Covid-19 Pandemic On Economic Behaviours And Preferences: Experimental Evidence From Wuhan, Jason Shachat, Matthew J. Walker, Lijia Wei

ESI Working Papers

We examine how the emergence of Covid-19 in Wuhan, and the ramifications of associated events, influence pro-sociality, trust and attitudes towards risk and ambiguity. We assess these influences using an experiment consisting of financially incentivized economic tasks. We establish causality via the comparison of a baseline sample collected pre-epidemic with five sampling waves starting from the imposition of a stringent lock- down in Wuhan and completed six weeks later. We find significant long-term increases - measured as the difference between the baseline and final wave average responses - in altruism, cooperation, trust and risk tolerance. Participants who remained in Wuhan …

Does Free Information Provision Crowd Out Costly Information Acquisition? It’S A Matter Of Timing, Diego Aycinena, Alexander Elbittar, Andrei Gomberg, Lucas Rentschler

ESI Working Papers

We consider the issue of how timing of provision of additional information affects information-acquisition incentives. In environments with costly attention, a sufficiently confident agent may choose to act based on the prior, without incurring those costs. However, a promise of additional information in the future may be used to encourage additional attentional effort. This may be viewed as a novel empirical implication of rational inattention. In a lab experiment designed to test this theoretical prediction, we show that promise of future “free” information induces subjects to acquire information which they would not be acquiring without such a promise.

The Effects Of Admission To Jail On Crime Rate In Mclean County, Illinois, Derek Conley

Student Research – Stevenson Center

The relationship between crime and incarceration is growing in interest in the United States. The United States incarceration rate is often double or triple the rate of other Organization for Economic Co-operation and Development (OECD) countries. The hardline approach the United States has taken on crime has many citizens and academics questioning its effectiveness on achieving safer communities. Traditional theory suggests incarcerating individuals for deviant behavior reduces the crime rate through the mechanisms of incapacitation, deterrence, rehabilitation, and retribution. However, some scholars believe concentration of incarceration in neighborhoods disrupts the social fabric of the neighborhood and produces the opposite of …