every little helps esg news and stock market reaction stories about corporate social responsibility have become very frequent over the past decade and managers can no longer ignore their impact on firm value in this paper we investigate the extent and the determinants of the stock market s reaction following ordinary news related to environmental social and governance issues the so called esg factors to that purpose we use an original database provided by covalence ethicalquote our empirical analysis is based on about 33 000 esg news positive or negative targeting one hundred listed companies over the period 2002 2010 on average firms facing negative events experience a drop in their market value of 0 1 whereas companies gain nothing on average from positive announcements we find also that market participants are responsive to the media but they do not react to firms press releases or to ngos disclosures moreover our results indicate that sector s reputation mitigates the loss the goodwill hypothesis and that cultural proximity and lexical contents of esg disclosures play a significant role in the magnitude of the impact

market wide attention trading and stock returns abstract market wide attention grabbing events record levels for the dow and front page articles about the stock market predict the trading behavior of investors and in turn market returns both aggregate and household level data reveal that high market wide attention events lead investors to sell their stock holdings dramatically when the level of the stock market is high such aggressive selling has a negative impact on market prices reducing market returns by 19 basis points on days following attention grabbing events

when transparency improves must prices reflect fundamentals better no in the presence of speculative opportunities investors can learn about both asset fundamentals and the beliefs of other traders we show that this learning exhibits complementarity learning more along one dimension increases the value of learning about the other as a result regulatory changes may be counterproductive first increasing transparency i e making fundamental information cheaper to acquire can make prices less informative when investors respond by learning relatively more about others second public disclosures discourage private learning about fundamentals while encouraging information acquisition about others accordingly disclosing more fundamental information can decrease overall informational efficiency by decreasing price informativeness received april 20 2016 editorial decision september 30 2017 by editor itay goldstein

wisdom of crowds the value of stock opinions transmitted through social media social media has become a popular venue for individuals to share the results of their own analysis on financial securities this paper investigates the extent to which investor opinions transmitted through social media predict future stock returns and earnings surprises we conduct textual analysis of articles published on one of the most popular social media platforms for investors in the united states we also consider the readers perspective as inferred via commentaries written in response to these articles we find that the views expressed in both articles and commentaries predict future stock returns and earnings surprises

does the better than average effect show that people are overconfident two experiments we conduct two experimental tests of the claim that people are overconfident using new tests of overplacement that are based on a formal bayesian model our two experiments on easy quizzes find that people overplace themselves more precisely we find apparently overconfident data that cannot be accounted for by a rational population of expected utility maximizers who care only about money the finding represents new evidence of overconfidence that is robust to the bayesian critique offered by benoit and dubra jean pierre benoit and juan dubra 2011 apparent overconfidence econometrica 79 1591 1625 we discuss possible limitations of our results

volatility spread and stock market response to earnings announcements abstract using a broad sample of earnings announcements we find a monotonic increase in the spread between call and put implied volatilities as it gets closer to the earnings announcement date the steady build up of volatility spread in the days leading up to the announcement date coupled with the predictive power of cumulative abnormal implied volatility spread on subsequent announcement returns suggests that informed traders are the driving force behind the option market activities prior to earnings announcements such informed trading as proxied by the abnormal implied volatility spread increases rather than decreases the stock market response to earnings announcements after controlling for an array of firm and announcement characteristics this effect is most pronounced when the pre earnings option trading volume is heightened overall our findings lend strong support to the notion that informed options trading immediately before earnings announcements helps alleviate the stock market under reaction to earnings announcements and make it closer to a complete response

growth forecasts belief manipulation and capital markets abstract we analyze how a benevolent privately informed government agency would optimally release information about the economy s growth rate when the agents hold heterogeneous beliefs we model two types of agent conforming and dissenting the former has a prior that is identical to that of the government agency whereas the latter has a prior that differs from that of the government agency we identify both informative and uninformative equilibria informative equilibria are equilibria in which the government agency s equilibrium signal leads to a revision of beliefs we demonstrate that the uninformative equilibria can in fact dominate the informative ones in terms of ex post social welfare

industry window dressing we explore a new mechanism by which investors take correlated shortcuts and present evidence that managers using sales management take advantage of these shortcuts specifically we exploit a regulatory provision wherein a firm s primary industry is determined by the highest sales segment exploiting this regulation we provide evidence that investors classify operationally nearly identical firms as starkly different depending on their placement around this sales cutoff moreover managers appear to exploit this by manipulating sales to be just over the cutoff in favorable industries further evidence suggests that managers engage in activities to realize large tangible benefits from this opportunistic action

aid policies and growth a nonlinear reassessment the association between foreign aid and growth has been controversial for decades and the evidence is quite mixed with results sensitive to data samples and modelling approaches we reassess the re

how the market values greenwashing evidence from china in china many firms advertise that they follow environmentally friendly practices to cover their true activities a practice called greenwashing which can cause the public to doubt the sincerity of greenization messages in this study i investigate how the market values greenwashing and further examine whether corporate environmental performance can explain different and asymmetric market reactions to environmentally friendly and unfriendly firms using a sample from the chinese stock market i provide strong evidence to show that greenwashing is significantly negatively associated with cumulative abnormal returns car around the exposure of greenwashing in addition corporate environmental performance is significantly positively associated with car around the exposure of greenwashing furthermore my findings suggest that corporate environmental performance has two distinct effects on car around the exposure of greenwashing the competitive effect for environmentally friendly firms and the contagious effect for potential environmental wrongdoers respectively the results are robust to various sensitivity tests

should we pay attention to investor attention in forex futures market we investigate whether forex futures dynamics is responsive to change in investor attention the currencies used in the study are the aud australian dollar cad canadian dollar eur euro gbp

budgetgames and the private and social demand for mixed public goods we have indicated how budgetgames played by a representative sample of voters can be used to estimate the marginal social demand for mixed public goods a model has been developed that enables us to distinguish between private and social demand considerations of the players information on marginal social demand is obtained by comparing the actual outcome of the game with a simulated game solution based on the optimization of private benefits only this optimization problem is shown to be approximately equivalent to a linear programming problem in which each respondent minimizes the loss of subsidies on his consumption of the mixed public goods considered empirical results show the largest marginal social demand for public services for the elderly followed by mental health care primary and secondary education and higher education a negative marginal social demand is expressed for in patient health care police and justice outpatient health care and culture and recreation the latter service having the smallest social demand an unexpected result is the relatively large marginal social demand for higher education although this service is severly cut in the actual game this outcome mainly derives from small private benefits to the average voter therefore the usual interpretation of budgetgames that identifies heavy budget cuts with small social demand underestimates the social demand for higher education the reverse is true for general in patient health care although this service is moderately cut in the actual game this result mainly derives from the large private benefits to the average voter in this case the usual interpretation of the game overestimates social demand we have also studied the dependence of the marginal social demand pattern on the political orientation of the voters apart from typical pure or almost pure public goods such as defence general government and police and justice services clearly favoured by right wing voters we find no strong dependence on political orientation

informational linkages across trading regions evidence from foreign exchange markets abstract using a new high frequency data set from electronic broking services ebs this paper examines informational linkages in the euro dollar and dollar yen exchange rates across five trading regions asia pacific the asia europe overlap europe the europe america overlap and america information is proxied by exchange rate return direction of return volatility trading activity and order flow we find that informational linkages are statistically significant at both own region and inter region levels but own region spillovers dominate in economic significance especially for volatility and trading activity in addition order flow spillovers from the europe america overlap trading region are the most important source of spillovers to other trading regions for both currency pairs

financial contagion and attention allocation this paper explains financial contagion between two stock markets with uncorrelated fundamentals by fluctuations in international investors attention allocation we model the process of attention allocation that underlies portfolio investment in international markets using investors who face information processing constraints investors optimally allocate more attention to a region hit by a financial crisis to the detriment of other markets the resulting endogenous increase in uncertainty causes a reduction in the capacity to bear risks by international investors that induces them to liquidate their positions in all risky assets hence there is a collapse in stock prices around the world we show that the degree of non anticipation of a crisis is crucial for the existence of contagion using data from the east asian crisis and the number of news stories about thailand in the financial times relative to news stories about argentina brazil and chile as a proxy for the relative attention allocated to the asian stock market we find evidence consistent with two key predictions of our model first the higher the volatility of the originator market the more relative attention allocated to this market and second the more relative attention allocated to the originator market the higher the volatility of the other markets our findings support the attention reallocation channel as a transmission mechanism of financial crises between regions during the period from january 1997 to july 1998

no news is news do markets underreact to nothing as illustrated in the tale of the dog that did not bark the absence of news and the passage of time often contain information we test whether markets fully incorporate this information using the empirical context of mergers during the year after merger announcement the passage of time is informative about the probability that the merger will ultimately complete we show that the variation in hazard rates of completion after announcement strongly predicts returns this pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions

learning about unstable publicly unobservable payoffs neoclassical finance assumes that investors are bayesian in many realistic situations bayesian learning is challenging here we consider investment opportunities that change randomly while payoffs are observable only when invested in a stylized version of the task we wondered whether performance would be affected if one were to follow reinforcement learning principles instead the answer is a definite yes when asked to perform our task participants overwhelmingly learned in a bayesian way they stopped being bayesians though when not nudged into paying attention to contingency shifts this raises an issue for financial markets who has the incentive to nudge investors

terrorist attacks analyst sentiment and earnings forecasts we examine whether exogenous and extremely negative events such as terrorist attacks and mass shootings influence the sentiment and forecasts of sell side equity analysts we find that analysts w

individual investor s limited attention and ipo performance the paper models and verifies the spread and decay of investor s attention before listing on the stock market by using the baidu index as a proxy for investor attention of the frequency of searches

investor attention overconfidence and category learning abstract motivated by psychological evidence that attention is a scarce cognitive resource we model investors attention allocation in learning and study the effects of this on asset price dynamics we show that limited investor attention leads to category learning behavior i e investors tend to process more market and sector wide information than firm specific information this endogenous structure of information when combined with investor overconfidence generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models our model also demonstrates new cross sectional implications for return predictability

the role of media in the credit crunch the case of the banking sector using a vector autoregression framework this paper investigates the dynamic relationship between the intensity of negative media speculation and the market performance of financial institutions evidence is provided that over the sub prime crisis period pessimistic coverage granger caused the returns on banking indices while causality in the opposite direction proved weaker these findings may imply that journalists not only report on the state of economic reality but also play an active role in creating it investors acting upon sentiment implicit in media reports would have been able to improve their investment performance as measured by sharpe ratios and jensen s alphas

quantity restrictions on advertising commercial media bias and welfare abstract we study the welfare effect of a quantity restriction on advertising in free to air television and other advertising financed media in the presence of commercial media bias broadcasters face a trade off between increasing the number of viewers by sending content that is highly valued by viewers and increasing the price of advertising by choosing advertiser friendly content a cap on advertising drives the per viewer price of ads up thus content improves for viewers therefore the cap can be welfare enhancing even when viewers are not ad averse competition among broadcasters makes it more likely that a cap on advertising improves welfare thus there is a complementarity between regulation and competition on this market we also show that a tax on advertising revenues has quite different effects than a cap on advertising quantity

information markets and the comovement of asset prices traditional asset pricing models predict that covariance between prices of difierent assets should be lower than what we observe in the data this model generates high covariance within a rational expectations framework by introducing markets for information about asset payofis when information is costly rational investors will not buy information about all assets they will learn about a subset because information production has high flxed costs competitive producers charge more for low demand information than for high demand information a price that declines in quantity makes investors want to purchase a common subset of information if investors price many assets using a common subset of information then a shock to one signal is passed on as a common shock to many asset prices these common shocks to asset prices generate excess covariance the cross sectional and time series properties of asset price covariance are consistent with this explanation

the impact of fraudulent false information on equity values there are two types of stock price manipulation examined in the theoretical literature 1 insider trading which involves private information that is true and 2 the public spreading of fraudulent false information while there is a large empirical literature on insider trading this is the first empirical article to examine the impact of false fraudulent public information on stock prices and trading volume we find that such false information even after being denied by a credible source such as the sec generates both abnormal returns and abnormal trading volume we also find that the effects of the false information on security returns and volume can be persistent for at least 2 weeks in addition we show that perpetrators of false news attacks can make potentially large profits from such market manipulations

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

those who know most insider trading in eighteenth century amsterdam this paper studies how private information is incorporated into prices using a unique setting from the eighteenth century that is closer to stylized models of price discovery than modern day markets specifically the paper looks at english securities traded in both london and amsterdam private information reached amsterdam through sailing boats that sailed only twice a week and in adverse weather could not sail at all results are consistent with a kyle model in which informed agents trade strategically most importantly the speed of information revelation in amsterdam depended on the expected time until the private signal would become public

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

contagious speculation and a cure for cancer a nonevent that made stock prices soar a sunday new york times article on a potential development of new cancer curing drugs caused entremed s stock price to rise from 12 063 at the friday close to open at 85 and close near 52 on monday it closed above 30 in the three following weeks the enthusiasm spilled over to other biotechnology stocks the potential breakthrough in cancer research already had been reported however in the journal nature and in various popular newspapers including the times more than five months earlier thus enthusiastic public attention induced a permanent rise in share prices even though no genuinely new information had been presented a central tenet of f inancial economics is that an asset should trade at the risk adjusted present value of its expected future cash f lows these expected future cash f lows exist in people s minds and do not normally lend themselves to direct observation an equilibrium price in a frictionless market does not tolerate disagreements among market participants if some people deem the price too low they will buy the asset if others think it is too high they will sell it short if necessary although the efficient markets hypothesis predicts that price changes are unpredictable it associates them with changes in traders beliefs about future cash f lows or the appropriate discount rate beliefs change with the arrival of new information thus in hindsight at least we should be able to ascribe price changes to the arrival of specific new information we examine this view in the context of a series of news reports in the media pertaining to entremed enmd a biotechnology company and other members of its sector the sunday may 3 1998 edition of the new york times reports on a recent breakthrough in cancer research and mentions enmd a company with licensing rights to the breakthrough kolata 1998 the story s impact on the stock prices was immediate huge and to a large extent permanent the new news content of the times story was nil though the substance of the story had been published as a scientific piece in nature boehm et al 1997 and in the popular press including the times itself wade 1997 more than five months earlier in november 1997

fund flows and performance understanding distribution channel this paper investigates the relevance and working mechanisms of fund distribution channels to subsequent fund inflows using a comprehensive dataset in china from 2004 to 2010 we find that more br

investor attention and market microstructure this paper develops the first economic model to study the impact of investor attention on the market microstructure in the kyle s 1985 setup our model strongly supports the empirical observation that higher investor attention leads to higher stock market volatility the first special case with one fully and one limited attentive traders explains that higher attention leads to higher trading intensity of retail investors market liquidity and stock market volatility the second special case with one fully inattentive and one limited attentive traders explains how investor attention affects buying and selling

stress testing the equity home bias a turnover analysis of eurozone markets abstract shifts in equity turnover happen on and around holidays because rationally bounded investors become distracted their pattern reveals a persistent equity home bias even in the eurozone a stress test case for the survival of this bias given the high level of economic and financial development and integration in this area the bias is greater for small caps because investors are reluctant to hold this class of foreign asset our study corroborates calendar anomalies in trading volumes but refutes the hypothesis regarding turnover sensitivity to stock returns common in the empirical and theoretical literature based on investor heterogeneity and short sale constraints our results reveal vanishing cost asymmetries in taking long rather than short positions

portfolio choice attention allocation and price comovement abstract this paper models the attention allocation of portfolio investors investors choose the composition of their information subject to an information flow constraint given their expected investment strategy in the next period which is to hold a diversified portfolio in equilibrium investors choose to observe one linear combination of asset payoffs as a private signal when investors use this private signal to update information about two assets changes in one asset affect both asset prices and may lead to asset price comovement the model also has implications for the transmission of volatility shocks between two assets

good day sunshine stock returns and the weather psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood this paper examines the relationship between morning sunshine in the city of a country s leading stock exchange and daily market index returns across 26 countries from 1982 to 1997 sunshine is strongly significantly correlated with stock returns after controlling for sunshine rain and snow are unrelated to returns substantial use of weather based strategies was optimal for a trader with very low transactions costs however because these strategies involve frequent trades fairly modest costs eliminate the gains these findings are difficult to reconcile with fully rational price setting

estimation of the value and cost of government and market supplied goods a review of previous research indicates that people s valuationsof government supplied services are not closely related to theircosts raising the question of how much people know about thecosts of such goods respondents rated the value of governmentand market supplied goods and services and estimated their costsin three studies the respondents made poor estimates of the percapita costs of supplying government services and were littlebetter at estimating per capita expenditure on a range of marketsupplied goods e g expenditure on fruit but they were quiteaccurate at estimating the prices of individual market supplieditems rated values of individual market supplied itemscorrelated well with the costs of the items but rated annualvalues of both government and market supplied goods were moreweakly correlated with their annual per capita costs the resultssuggests that the inaccuracy in estimating the costs ofgovernment goods might arise because such items do not haveindividual item prices rather than because people generally donot pay for them themselves

foreign aid and statehood in africa has foreign aid destroyed state institutions in africa african states depend on development assistance to conduct basic government operations yet few of these states are well governed or effective at providing public goods the two trends mounting foreign aid and static or diminishing state performance raise an obvious question is aid dependency contributing to misrule and state failure in africa many critics argue the two phenomena are related i find they are not my analysis fails to show a negative association between aid receipts and two measures of democracy and economic freedom instead the evidence is consistent with a small positive relationship between aid and these indicators of state performance since the international community seems bent on reducing foreign aid an important issue is how african states can maintain and improve their performance with less foreign assistance

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

soda wars the effect of a soda tax election on university beverage sales author s taylor rlc kaplan s villas boas sb jung k abstract 2019 western economic association international we examine how soda sales changed due to the campaign attention and election outcome of a local excise tax on sugar sweetened beverages using panel data of beverage sales from university retailers in berkeley california we estimate that soda purchases relative to control beverages significantly dropped immediately after the election months before the tax was implemented in the city of berkeley or on campus supplemental scanner data from off campus retailers reveal this result is not unique to the university setting our findings suggest soda tax media coverage and election outcomes can have larger effects on purchasing behavior than the tax itself jel d12 h20 c23 i38 q18

aid dependence and the quality of governance cross country empirical tests aid dependence can potentially undermine the quality of governance and public sector institutions by weakening accountability encouraging rent seeking and corruption fomenting conflict over control of aid funds siphoning off scarce talent from the bureaucracy and alleviating pressures to reform inefficient policies and institutions analyses of cross country data in this paper provide evidence that higher aid levels erode the quality of governance as measured by indices of bureaucratic quality corruption and the rule of law these findings support the need for donors to develop less costly and less intrusive ways of disseminating state of the art knowledge on public sector reform in developing countries

how important is the financial media in global markets this article studies differences in the information content of 870 000 news announcements in 56 markets around the world in most developed markets a firm s stock price moves much more on days with public news about the firm in contrast in many emerging markets volatility is similar on news and non news days we examine several hypotheses for our findings cross country differences in stock price reactions are best explained by insider trading followed by differences in the quality of the news dissemination mechanism our findings are useful for quantifying the extent of insider trading and how the financial media affects international markets jel g14 g15 public news announcements are a major mechanism for disseminating information to investors each day the financial media releases thousands of articles covering companies in markets worldwide investors use this news to estimate assets fundamental values despite the perceived importance of the

overreaction to intra industry information transfers prior research has documented that earnings announcements provide information not only about the announcing firm but also about other firms in the same industry we document a stock market anomaly associated with this phenomenon of intra industry information transfers by showing that the stock price movements of late announcers in response to earnings reported by early announcers are negatively related to subsequent price responses of late announcers to their own earnings reports apparently the stock market overestimates the intra industry implications of early announcers earnings for late announcers earnings and that overestimation is corrected when late announcers disclose their earnings

does foreign aid corrupt abstract we estimate the impact of foreign aid on corruption using geographical and cultural distance to the donor countries as instrumental variables to assess causality aid decreases corruption our results are statistically and economically significant and robust to different controls

market madness the case of mad money we use the popular television show mad money hosted by jim cramer to test theories of attention and limits to arbitrage stock recommendations on mad money constitute attention shocks to a large audience of individual traders we find that stock recommendations lead to large overnight returns that subsequently reverse over the next few months the spike reversal pattern is strongest among small illiquid stocks that are hard to arbitrage using daily nielsen ratings as a direct measure of attention we find that the overnight return is strongest when high income viewership is high we also find weak price effects among sell recommendations taken together the evidence supports the retail attention hypothesis of barber and odean barber b t odean 2008 all that glitters the effect of attention and news on the buying behavior of individual and institutional investors rev financial stud 21 2 785 818 and illustrates the potential role of media in generating mispricing this paper was accepted by brad barber teck ho and terrance odean special issue editors

dodging adverse selection how donor type and governance condition aid s effects on school enrollment summary we employ aiddata to test the effects of primary education aid on school enrollment we argue that the problem of adverse selection complicates both the allocation and the effectiveness of aid we hypothesize that bilateral donors ought to have greater freedom to condition aid on recipient governance quality than multilateral donors which are often bound by institutional rules to provide aid more impartially compared to their multilateral counterparts bilateral donors may have advantages in overcoming adverse selection resulting in bilateral aid s boosting enrollments to a greater degree aiddata s extensive coverage of multilateral aid enables this analysis for up to 100 low and low middle income countries from 1995 to 2008 latent growth regression analysis suggests that compared to multilateral donors bilateral donors indeed condition their primary education aid on recipient control of corruption and that bilateral aid is significantly related to improved enrollments

the stability of stated preferences for public goods evidence from recent budget games we have investigated the stability of the individual response in recent budget games based on survey data which is an important requirement for the reliability of this instrument budget games have gained popularity due to the problems encountered with alternative methods to determine preferences for public goods such as the analysis of actual public expenditure date using median voter theory or similar approaches the short term test retest correlations within an interval of one month turn out to be rather low typical around 0 3 no explanation of the test retest differences could be found from the usual socio economic and political characteristics of the respondents or from information characteristics of the survey design also the pattern of budget game outcomes for different countries and different periods is rather similar the cumulative evidence suggests that the survey response to budget games is generated to a large extent by very general notions on the un desirability of public goods defence is bad education and health care are good this implies that outcomes are often not related to the actual level and structure of public expenditure or revenues as a result the individual responses even to the more sophisticated budget games are subject to large uncertainty margins our results should warn researchers and even more important policy makers against giving too much weight to stated preferences for public expenditure or taxation levels obtained from budget games of course further research is needed to obtain the precise limits of the instrument including laboratory experimental economics

robustly strategic consumption portfolio rules with informational frictions this paper provides a tractable continuous time constant absolute risk aversion gaussian framework to explore how the interactions of fundamental uncertainty model uncertainty due to a preference for robustness and state uncertainty due to information processing constraints rational inattention affect strategic consumption portfolio rules and precautionary savings in the presence of uninsurable labor income specifically after solving the model explicitly i compute and compare the elasticities of strategic asset allocation and precautionary savings to risk aversion robustness and inattention furthermore for plausibly estimated and calibrated model parameters i quantitatively analyze how the interactions of model uncertainty and state uncertainty affect the optimal share invested in the risky asset and show that they can provide a potential explanation for the observed stockholding behavior of households with different education and income levels this paper was accepted by neng wang finance

discussion of earnings announcement promotions a yahoo finance field experiment abstract lawrence et al run a field experiment on yahoo finance which randomly promotes some earnings stories they find that firms in promoted stories have higher contemporaneous returns i begin by reviewing the media and finance literature and discuss the difficulty in solving the identification problem lawrence et al wish to solve i then discuss how their results fit with existing theories of attention and suggest some changes that could help pin down which theory best explains the results finally i discuss possible directions for future research i would like to thank john core editor and participants at the 2017 journal of accounting and economics conference for their comments and suggestions all errors here are my own

corporate reputation s invisible hand bribery rational choice and market penalties drawing upon rational choice and investor attention theories we examine how accusations of corporate bribery and subsequent investigations shape market reactions using event study methodology to measure loss in firm value for public firms facing bribery investigations from 1978 to 2010 we found that total market penalties amounted to 60 61 billion we ran moderated multiple regression analysis to examine further the degree to which the unique characteristics of bribery explain variations in market penalties companies committing bribery in less corrupt host countries and with the involvement of compromised executives experienced greater market penalties than did other companies after partitioning share value losses into components for regulatory penalties class action settlements and loss to reputation we found that reputational penalties account for 81 8 of every dollar of share value loss omission of reputational penalties in rational choice calculus underestimates bribery costs by 4 5 times the results suggest that firms should not underestimate the importance of market imposed reputational penalties by merely considering regulator imposed fines and sanctions

how democracy affects growth abstract this paper introduces a new methodology to examine the empirical relationship between democracy and economic growth democratic institutions are assumed to affect growth through a series of channels we specify and estimate a full system of equations determining growth and the channel variables results suggest that democracy fosters growth by improving the accumulation of human capital and less robustly by lowering income inequality on the other hand democracy hinders growth by reducing the rate of physical capital accumulation and less robustly by raising the ratio of government consumption to gdp once all of these indirect effects are accounted for the overall effect of democracy on economic growth is moderately negative our results indicate that democratic institutions are responsive to the demands of the poor by expanding access to education and lowering income inequality but do so at the expense of physical capital accumulation

robustness of intermediate agreements and bargaining solutions abstract most real life bargaining is resolved gradually during this process parties reach intermediate agreements these intermediate agreements serve as disagreement points in subsequent rounds we identify robustness criteria which are satisfied by three prominent bargaining solutions the nash proportional and as a special case to the egalitarian solution and discrete raiffa solutions we show that the robustness of intermediate agreements plus additional well known and plausible axioms provide novel axiomatizations of the above mentioned solutions hence we provide a unified framework for comparing these solutions bargaining theories

a transaction level analysis of spatial arbitrage the role of habit attention and electronic trading despite the central role of arbitrage in finance and economic theory there is limited evidence of the factors that create and eliminate arbitrage opportunities how often arbitrage occurs and how profitable it is we address these gaps via a transaction level analysis of spatial arbitrage in the wholesale automotive market we investigate why arbitrage opportunities are created by analyzing how sellers choose where to sell vehicles we find that the attention sellers pay to the distribution of a vehicle is negatively related to the probability that it is arbitraged arbitrage occurs in approximately 1 of transactions although electronic trading is making arbitrage less prevalent by improving buyer seller matching across locations arbitrage yields a 5 6 return on average although arbitrageurs take a loss 14 of the time our results contribute to the literature on arbitrage the effect of attention allocation on market outcomes and the effect of information technology on market efficiency this paper was accepted by brad barber teck ho and terrance odean special issue editors

why don t we agree evidence from a social network of investors we study sources of investor disagreement using sentiment of investors from a social media investing platform combined with information on the users investment approaches e g technical fundamental we examine how much of overall disagreement is driven by different information sets versus differential interpretation of information by studying disagreement within and across investment approaches overall disagreement is evenly split between both sources of disagreement but within group disagreement is more tightly related to trading volume than cross group disagreement although both sources of disagreement are important our findings suggest that information differences are more important for trading than differences across market approaches

law endowments and property rights while scholars have hypothesized about the sources of variation in property rights for over 2500 years it is only very recently that researchers have begun to test these theories empirically this paper reviews both the theory and empirical evidence supporting and refuting the law and endowment views of property rights the law view holds that historically determined differences in national legal traditions continue to shape cross country differences in property rights the endowment view argues that during european colonization differences in climate crops the indigenous population and the disease environment influenced long run property rights

opec in the news abstract this paper introduces a newspaper article count index related to opec that rises in response to important opec meetings and events connected with opec production levels i use this index to measure how interest in opec varies over time and investigate how oil price volatility behaves when the index unexpectedly changes i find that unexpected increases in the newspaper index are strongly associated with higher levels of oil price volatility both realized and implied in some cases these unexpected movements appear to be driven by an unpredictable opec event such as the iraq invasion of kuwait in other cases such as the oil price collapses in late 2008 and late 2014 unforeseen developments in the oil market or broader economy seem to generate the unexpected movements in price volatility and interest in opec the newspaper index is highly correlated with google search volume data on opec an alternative measure of the amount of attention paid to opec events

limited attention interaction and the gradual adjustment of a firm s decisions a person cannot make many decisions at a time but an organization needs millions of interrelated decisions we incorporate this idea into a standard theory of production two assumptions are emphasized an agent cannot optimize more than one input at a time and there is interaction among inputs when a firm alternates its attention the demand for inputs gradually adjusts to the static optimal level when a firm optimally allocates its attention this adjustment may not occur we investigate the conditions under which the adjustment takes place the results are applied to a standard investment theory the derived investment capital ratio is independent of firm size and imperfectly correlated with tobin s q

information shocks and the dynamics of the housing market in this paper we analyze housing market reactions to the release of previously unpublished information on school quality using high quality housing data which precisely bracket the timing of the information shock we investigate housing price dynamics within school catchment areas we find a robust short term housing market reaction to the publication of school quality indicators suggesting that this information was new to the households and that households are willing to pay for better schools the publication effect does not seem to be permanent as prices revert to pre publication levels after two to three months

mood betas and seasonalities in stock returns abstract existing research has found cross sectional seasonality of stock returns the periodic outperformance of certain stocks during the same calendar months or weekdays we hypothesize that assets different sensitivities to investor mood explain these effects and imply other seasonalities consistent with our hypotheses relative performance across individual stocks or portfolios during past high or low mood months and weekdays tends to recur in periods with congruent mood and reverse in periods with noncongruent mood furthermore assets with higher sensitivities to aggregate mood higher mood betas subsequently earn higher returns during ascending mood periods and earn lower returns during descending mood periods

local versus non local effects of chinese media and post earnings announcement drift abstract taking advantage of the institutional difference in capture between local and non local media in china we examined the association between media capture and post earnings announcement drift pead using both portfolio and regression analyses we found that for the same firms non local media coverage is negatively associated with pead however there is no association between local media coverage and pead except for non state owned firms given that in china non local media are less captured or more independent than local media the negative association observed for non local media coverage can be interpreted as an indication that media independence plays a role in reducing pead or improving informational efficiency in the stock market

the determinants of international investment and attention allocation using internet search query data abstract this paper explores the joint determination of home bias and attention allocation we overcome the typical challenge associated with evaluating attention allocation theories by using a new internet search query dataset to measure how much information investors decide to process employing an instrumental variables approach we find empirical evidence of a two way causality between home bias and attention our estimates suggest that if all countries were to receive the same level of attention as the u s then the average home bias by u s investors would fall from 85 2 to 57 3

the puzzling evolution of the home bias information processing and financial openness abstract this paper explains the home equity bias and its puzzling evolution in a model where investors face an information constraint and have an initial local informational advantage after financial liberalization local investors have a magnified informational advantage since information processed under autarky remains useful after liberalization a gradual shift towards foreign assets occurs as the relevance of autarkic information declines over time in the long run home bias remains large due to the interaction between information and portfolio choices empirical evidence supports the main predictions of our model namely that bias increases with information capacity and decreases with financial openness

presidential address social transmission bias in economics and finance i discuss a new intellectual paradigm social economics and finance the study of the social processes that shape economic thinking and behavior this emerging field recognizes that people observe and talk to each other a key underexploited building block of social economics and finance is social transmission bias systematic directional shift in signals or ideas induced by social transactions i use five fables models to illustrate the novelty and scope of the transmission bias approach and offer several emergent themes for example social transmission bias compounds recursively which can help explain booms bubbles return anomalies and swings in economic sentiment

the small blessing of foreign aid further evidence on aid s impact on democracy in an empirical contribution to the literature of foreign aid we estimate the impact of foreign aid on democracy in a panel of 93 developing economies during 1971 2010 we find that foreign aid promotes democracy with the result robust to different estimation methodologies and control variables and to instrumenting for foreign aid

earnings announcements and attention constraints the role of market design abstract we identify a new channel market makers attention constraints through which earnings announcements for one stock affect the liquidity of other stocks when some stocks handled by a designated market maker have earnings announcements liquidity is lower for non announcement stocks handled by the same market maker with the largest effects coming from earnings surprises and stocks with high earnings response coefficients half of the liquidity decline reflects attention constraints binding on the individual market maker and the other half is explained by the market maker s inventory we further find that a market design change that increases automation alleviates the liquidity effect of attention constraints despite an increase in the number of stocks allocated to each market maker

investor overconfidence and the forward premium puzzle we offer an explanation for the forward premium puzzle in foreign exchange markets based upon investor overconfidence in the model overconfident individuals overreact to their information about future inflation which causes greater overshooting in the forward rate than in the spot rate thus when agents observe a signal of higher future inflation the consequent rise in the forward premium predicts a subsequent downward correction of the spot rate the model can explain the magnitude of the forward premium bias and several other stylized facts related to the joint behaviour of forward and spot exchange rates our approach is also consistent with the availability of profitable carry trade strategies

attention misallocation social welfare and policy implications we examine how agents allocate attention between private and public signals to reduce the uncertainty about observation noises when coordination is an important concern in this setting the attention allocation may not be monotone in endowed attention capacity agents may decrease their attention on or even ignore the more accurate signal when capacity increases as a result social welfare may decrease when they have more attention to process information and it can be even higher when agents possess a finite amount of capacity than when they have an infinite amount of capacity we derive sufficient and necessary conditions under which multiple equilibria emerge and study the implications of equilibrium multiplicity for macroeconomic policies

journalists and the stock market we use exogenous scheduling of wall street journal columnists to identify a causal relation between financial reporting and stock market performance to measure the media s unconditional effect we add columnist fixed effects to a daily regression of excess dow jones industrial average returns relative to standard control variables these fixed effects increase the r super 2 by about 35 indicating each columnist s average persistent bullishness or bearishness to measure the media s conditional effect we interact columnist fixed effects with lagged returns this increases explanatory power by yet another one third and identifies amplification or attenuation of prevailing sentiment as a tool used by financial journalists the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

speculation spillovers this paper demonstrates that speculative activities can be contagious and spill over across markets specifically we test the hypothesis that during china s warrants bubble period speculative activities in the warrants market grabbed investors attention and caused them to trade more speculatively in the underlying stocks consistent with this hypothesis we find that turnover and return volatility of the underlying stocks are positively associated with the warrants unexpected turnover and price deviation from their fundamental values during the previous day controlling for information driven trading and hedging motives and that such a spillover effect is more pronounced when warrants attract more investor attention data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1914 this paper was accepted by wei xiong finance

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed

is aid oil an analysis of whether africa can absorb more aid summary this paper considers whether africa can absorb a doubling of aid if oil revenues provide a natural experiment the results are disappointing far from being transformational they have been markedly less successful than aid one implication is that the delivery modalities of aid though heavily criticized have substantially added value the paper discusses which modalities may have been most useful unfortunately aid appears to be subject to diminishing returns so that doubling aid through conventional modalities would not double its impact the paper concludes by considering innovations in aid modalities which might offset diminishing returns