portfolio selection using hierarchical bayesian analysis and mcmc methods abstract this paper contributes to portfolio selection methodology using a bayesian forecast of the distribution of returns by stochastic approximation new hierarchical priors on the mean vector and covariance matrix of returns are derived and implemented comparison s between this approach and other bayesian methods are studied with simulations on 25 years of historical data on global stock indices it is demonstrated that a fully hierarchical bayes procedure produces promising results warranting more study we carried out a numerical optimization procedure to maximize expected utility using the mcmc monte carlo markov chain samples from the posterior predictive distribution this model resulted in an extra 1 5 percentage points per year in additional portfolio performance on top of the hierarchical bayes model to estimate and and use the markowitz model which is quite a significant empirical result this approach applies to a large class of utility functions and models for market returns

the propagation of monetary policy shocks in a heterogeneous production economy abstract realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input output linkages in the transmission of monetary policy shocks quantitatively heterogeneity in price stickiness is the central driver for real effects input output linkages and consumption shares alter the identity of the most important sectors to the transmission reducing the number of sectors decreases monetary non neutrality with a similar impact response of inflation hence the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input output linkages identifies the wrong sectors from which the real effects originate

how to identify trust and reciprocity this paper uses a three games or triadic design to identify trusting and reciprocating behavior a large literature on single game trust and reciprocity experiments is based on the implicit assumption that subjects do not have altruistic or inequality averse other regarding preferences such experimental designs test compound hypotheses that include the hypothesis that other regarding preferences do not affect behavior in contrast experiments with the triadic design do discriminate between transfers resulting from trust or reciprocity and transfers resulting from other regarding preferences that are not conditional on the behavior of others decomposing trust from altruism and reciprocity from altruism or inequality aversion is critical to obtaining empirical information that can guide the process of constructing models that can increase the empirical validity of game theory

conditional cooperation type stability across games abstract to classify cooperation types a sequential prisoner s dilemma and a one shot public goods game are convenient experimental setups we explore the within subject stability of cooperation preferences in these two games we find that the prisoner s dilemma performs well in identifying conditional cooperators while it is only an imperfect tool for identifying selfish types in the public goods game

firm size distributions an overview of steady state distributions resulting from firm dynamics models abstract empirical firm size distributions are the cumulated result of underlying firm dynamics involving entry of new firms and growth decline and exits of incumbent firms in this paper we give an overview of firm size distributions that result as steady states from models differing in the way these firm dynamics are modelled in the process we i derive common results and explain seemingly contradictory results ii propose new functional forms to describe firm size distributions iii give insight in the interrelationships between the distributions in terms of underlying firm dynamics iv give possible firm dynamical interpretations of the parameters of the distributions and v analyse to which extent the steady state approach is able to explain the shape of firm size distributions that are encountered in practice

firm volatility in granular networks firm volatilities comove strongly over time and their common factor is the dispersion of the economy wide firm size distribution in the cross section smaller firms and firms with a more concentr

behavioral spillover effects from a social information campaign abstract we investigate whether a social information campaign aimed at reducing water use causes a spillover effect on the use of electricity on average water use decreased by 6 percent for the treatment group we identify a positive spillover effect on electricity use among households that had efficient use of water before the campaign the effect is sizeable almost a 9 percent reduction we argue that these results are consistent with a model of cognitive dissonance where the efficient households infer information about electricity use from the water use information

on the relationship between firm size and export intensity export marketing literature supports the view that firm size is positively related to export intensity although the empirical findings have been mixed a number of theoretical arguments are used to support this proposition i e international marketing economies of scale limited managerial and financial resources of small firms decisionmaker s risk perception based on a large survey of the italian manufacturing industry the article falsifies the proposition and challenges some widely held assumptions in export marketing literature

egalitarianism and competitiveness competition is a cornerstone of economic life some environments are however more competitive than others and individuals are often confronted with the decision whether to self select into a competitive environment an important example is occupational choice a self employed lawyer is in constant competition for clients whereas a lawyer working as a civil servant in a public authority is not likewise some people vigorously compete for promo tion to better paid jobs associated with a high prestige while others don t understanding who self selects into competitive environments and who shies away from them is thus important in this paper we test the hypothesis that individu als with a preference for egalitarian outcomes are more reluctant to self select into competitive environments our hypothesis is based on i the observation that payoff inequalities among winners and losers arise as a natural by product of competition and ii the empirical literature showing that a nonnegligible share of children and adults is willing to incur costs to reduce earnings inequalities see e g christopher dawes et al 2007 ernst fehr helen bernhard and bettina rockenbach 2008 we analyze data from several economic experiments implemented in a household survey study with mothers of preschool children we

bayes stein estimation for portfolio analysis in portfolio analysis uncertainty about parameter values leads to suboptimal portfolio choices the resulting loss in the investor s utility is a function of the particular estimator chosen for expected returns so this is a problem of simultaneous estimation of normal means under a well specified loss function in this situation as stein has shown the clas sical sample mean is inadmissible this paper presents a simple empirical bayes estimator that should outperform the sample mean in the context of a portfolio simulation analysis shows that these bayes stein estimators provide significant gains in portfolio selection problems

the great diversification and its undoing we investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks we define fundamental volatility as the volatility that would arise from an economy made entirely of idiosyncratic sectoral or firm level shocks fundamental volatility accounts for the swings in macroeconomic volatility in the major world economies in the past half century it accounts for the great moderation and its undoing the initial great moderation is due to a decreasing share of manufacturing between 1975 and 1985 the recent rise of macroeconomic volatility is chiefly due to the growth of the financial sector jel e23 e32 e44 this article explores the hypothesis that changes in the microeconomic composition of the economy during the postwar period can account for the great moderation and its unraveling both in the united states and in the other major world economies we call fundamental volatility the volatility that would be derived only from microeconomic shocks if aggregate shocks come in large part from microeconomic shocks augmented by amplification mechanisms then aggregate volatility should track fundamental volatility to operationalize this idea the key quantity we consider which constitutes one departure from other studies is the following definition of fundamental volatility

alternative estimators for factor garch models a monte carlo comparison this paper proposes four estimators for factor garch models two stage univariate garch 2sue two stage quasi maximum likelihood 2sml quasi maximum likelihood with known factor weights rmle quasi maximum likelihood with unknown factor weights mle a monte carlo study is designed for bivariate one factor garch models to examine the finite sample properties results are presented for biases ratios of standard errors to standard deviations ratios of variances coverage of confidence intervals effects of misspecified factor weights and finite sample properties of the 2sue for factor garch in mean models

measuring self control problems we develop a survey instrument to measure self control problems in a sample of highly educated adults this measure relates in the manner that theory predicts to liquid wealth accumulation and personality measures yet while self control problems are typically seen as resulting in overconsumption and low wealth we identify a significant group who underconsume and thereby accumulate high levels of wealth in addition self control problems are smaller in scale for older than for younger respondents those who put money aside in retirement accounts may be delaying access to a point at which self control problems are no longer important jel d12 d14

strategic behavior and learning in repeated voluntary contribution experiments abstract voluntary contribution experiments systematically find that contributions decline over time we use a two stage voluntary contribution game to investigate whether this decrease is caused by learning or strategic behavior using a strategy method we find a robust pattern of declining contributions contributions in stage 2 are 45 percent lower than in stage 1 repeating the game five times we find that experience generates a smaller decline in contributions stage 1 contributions decrease by around 7 percent per game finally we find no significant differences between the strategy and direct response method which suggests that our results help explain behavior in the latter

the idiosyncratic volatility puzzle time trend or speculative episodes campbell lettau malkiel and xu 2001 document a positive trend in idiosyncratic volatility during the 1962 1997 period we show that by 2003 volatility falls back to pre 1990s levels furthermore we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership this evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but rather an episodic phenomenon at least partially associated with retail investors results from cross sectional regressions conditional trend estimation stock split events and attention grabbing events are consistent with a retail trading effect the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

bayesian inference methods for univariate and multivariate garch models a survey this survey reviews the existing literature on the most relevant bayesian inference methods for univariate and multivariate garch models the advantages and drawbacks of each procedure are outlined as well as the advantages of the bayesian approach versus classical procedures the paper makes emphasis on recent bayesian non parametric approaches for garch models that avoid imposing arbitrary parametric distributional assumptions these novel approaches implicitly assume infinite mixture of gaussian distributions on the standardized returns which have been shown to be more flexible and describe better the uncertainty about future volatilities finally the survey presents an illustration using real data to show the flexibility and usefulness of the non parametric approach

the many faces of human sociality uncovering the distribution and stability of social preferences there is vast heterogeneity in the human willingness to weigh others interests in decision making this heterogeneity concerns the motivational intricacies as well as the strength of other regarding behaviors and raises the question how one can parsimoniously model and characterize heterogeneity across several dimensions of social preferences while still being able to predict behavior over time and across situations we tackle this task with an experiment and a structural model of preferences that allows us to simultaneously estimate outcome based and reciprocity based social preferences we find that non selfish preferences are the rule rather than the exception neither at the level of the representative agent nor when we allow for several preference types do purely selfish types emerge instead three temporally stable and qualitatively different other regarding types emerge endogenously i e without pre specifying assumptions about the characteristics of types when ahead all three types value others payoffs significantly more than when behind the first type which we denote as strongly altruistic type is characterized by a relatively large weight on others payoffs even when behind and moderate levels of reciprocity the second type denoted as moderately altruistic type also puts positive weight on others payoff yet at a considerable lower level and displays no positive reciprocity while the third type is behindness averse i e puts a large negative weight on others payoffs when behind and behaves selfishly otherwise we also find that there is an unambiguous and temporally stable assignment of individuals to types moreover the three type model substantially improves the out of sample predictions of individuals behavior across additional games while the information contained in subject specific parameter estimates leads to no or only minor additional predictive power this suggests that a parsimonious model with three types captures the bulk of the predictive power contained in the preference estimates

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

temporal stability and psychological foundations of cooperation preferences abstract a core element of economic theory is the assumption of stable preferences we test this assumption in public goods games by repeatedly eliciting cooperation preferences in a fixed subject pool over a period of five months we find that cooperation preferences are very stable at the aggregate level and to a smaller degree at the individual level allowing us to predict future behavior fairly accurately furthermore our results provide evidence on the psychological foundations of cooperation preferences the personality dimension agreeableness is closely related to both the type and the stability of cooperation preferences

fear and greed in financial markets a clinical study of day traders we investigate several possible links between psychological factors and trading performance in a sample of 80 anonymous day traders using daily emotional state surveys over a five week period as well as personality inventory surveys we construct measures of personality traits and emotional states for each subject and correlate these measures with daily normalized profits and losses records we find that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance psychological traits derived from a standardized personality inventory survey do not reveal any specific trader personality profile raising the possibility that trading skills may not necessarily be innate and that different personality types may be able to perform trading functions equally well after proper instruction and practice this abstract was borrowed from another version of this item

temporal stability of time preferences abstract the preferences assumed to govern intertemporal trade offs are generally considered to be stable economic primitives though evidence on this stability is notably lacking we present evidence from a large field study conducted over two years with around 1 400 individuals using incentivized intertemporal choice experiments aggregate choice profiles and corresponding estimates of discount parameters are unchanged over the two years and individual correlations through time are high by existing standards however some individuals show signs of instability by linking experimental measures to administrative tax records we showthat identified instability is uncorrelated with both levels and changes in sociodemographic variables

social learning and voluntary cooperation among like minded people many people contribute to public goods but stop doing so once they experience free riding we test the hypothesis that groups whose members know that they are composed only of likeminded cooperators are able to maintain a higher cooperation level than the most cooperative randomly composed groups our experiments confirm this hypothesis we also predict that groups of like minded free riders do not cooperate yet we find a high level of strategic cooperation that eventually col lapses our results underscore the importance of group composition and social learning by heterogeneously motivated agents to understand the dynamics of cooperation and free riding

full bayesian inference for garch and egarch models a full bayesian analysis of garch and egarch models is proposed consisting of parameter estimation model selection and volatility prediction the bayesian paradigm is implemented via markov chain monte carlo methodologies we provide implementation details and illustrations using the general index of the athens stock exchange

a semiparametric bayesian approach to the analysis of financial time series with applications to value at risk estimation abstract garch models are commonly used for describing estimating and predicting the dynamics of financial returns here we relax the usual parametric distributional assumptions of garch models and develop a bayesian semiparametric approach based on modeling the innovations using the class of scale mixtures of gaussian distributions with a dirichlet process prior on the mixing distribution the proposed specification allows for greater flexibility in capturing the usual patterns observed in financial returns it is also shown how to undertake bayesian prediction of the value at risk var the performance of the proposed semiparametric method is illustrated using simulated and real data from the hang seng index hsi and bombay stock exchange index bse30

the gaussian mixture dynamic conditional correlation model parameter estimation value at risk calculation and portfolio selection a multivariate generalized autoregressive conditional heteroscedasticity model with dynamic conditional correlations is proposed in which the individual conditional volatilities follow exponential generalized autoregressive conditional heteroscedasticity models and the standardized innovations follow a mixture of gaussian distributions inference on the model parameters and prediction of future volatilities are addressed by both maximum likelihood and bayesian estimation methods estimation of the value at risk of a given portfolio and selection of optimal portfolios under the proposed specification are addressed the good performance of the proposed methodology is illustrated via monte carlo experiments and the analysis of the daily closing prices of the dow jones and nasdaq indexes

sectoral versus aggregate shocks a structural factor analysis of industrial production using factor methods we decompose industrial production ip into components arising from aggregate and sector specific shocks an approximate factor model finds that nearly all of ip variability is associated with common factors we then use a multisector growth model to adjust for the effects of input output linkages in the factor analysis thus a structural factor analysis indicates that the great moderation was characterized by a fall in the importance of aggregate shocks while the volatility of sectoral shocks was essentially unchanged consequently the role of idiosyncratic shocks increased considerably after the mid 1980s explaining half of the quarterly variation in ip