Miracle-dz/UniFAR-FTUs huggingface dataset:
How Endogenization of the Reference Point Affects Loss Aversion: A Study of Portfolio Selection

Endogenization of the Reference Point Reduces Loss Aversion A central idea in behavioral economics is that agents derive utility from gain and losses relative to a certain reference point and that losses loom larger than gains. In “How Endogenization of the Reference Point Affects Loss Aversion: A Study of Portfolio Selection,” He and Strub study the implications of various models of partially endogenous reference points on portfolio selection. In these models, an agent faces a salient exogenous reference point that influences the formation of endogenously determined expectations about the future, through rational expectations, optimal expectations, or mental updating of the reference point. A key finding is that the predictions of these models are identical to a model with an exogenous reference point but a lower degree of loss aversion. This suggests that it is difficult to separately identify an agent’s degree of loss aversion and his or her reference point and may help to explain why experienced and sophisticated agents appear to be less loss averse than expected in some field settings.
Managerial Political Power and Reallocation of Value in the Internal Capital Market

We examine how managers’ political power reallocates value across divisions in the internal capital market. By shifting the focus from financial to firm-specific non-financial resources that are difficult to evaluate and zero-sum in nature, we revise the prevailing view that a manager’s political power plays a significant yet contingent role only under financial constraint and weak governance. We instead characterize it as an intrinsic, inescapable determinant of how value is allocated in the internal capital market. We test our argument in the context of the corruption trials against a key executive at Samsung business group. By parsing each sentence of the legal opinion delivered during these trials, we identify a series of high-frequency shocks that unfold over the course of minutes and show that the loss of one manager’s political power can transfer resources and value to other divisions. This study presents a politics-based theory of internal value reallocation and highlights the methodological potential of using a quantitative case study that combines high-frequency stock market data with a detailed qualitative analysis to generate and test a new theory.
Crowdsourced Earnings Expectations and the Market Reaction to Street Earnings Surprises

Researchers and market participants traditionally rely on sell-side analyst forecasts to determine the news content of an earnings announcement, despite widespread evidence that analysts' short-term forecasts are pessimistically biased. This paper examines whether crowdsourced earnings forecasts, which are less biased and not subject to the conflicts of interest in sell-side research, raise investor awareness of analyst forecast bias around earnings announcements. We find investors discount the earnings news of firms that meet or beat analyst expectations when earnings simultaneously miss crowdsourced expectations, and that this discount increases with investor attention to crowdsourced forecasts. We also demonstrate that the market efficiently prices the predictable bias in analyst-based earnings surprises based on information in crowdsourced forecasts. Lastly, we find that missing crowdsourced expectations limits managers' ability to profit from insider sales after meeting or beating analyst expectations. Overall, we conclude that crowdsourced earnings forecasts help investors better process and debias earnings news.
Charge-Transfer Quenching of Singlet Oxygen O2(1Δg) by Amines and Aromatic Hydrocarbons

The quenching rate constants of singlet oxygen O2(1Δg) luminescence at 1.27 μm by 29 amines and aromatic hydrocarbons were measured in acetonitrile and benzene. Quenching occurs via reversible charge transfer with the formation of an exciplex with a partial (δ ≈ 0.2 esu) electron transfer. An estimate of the intersystem-crossing rate constant for the exciplex of ca. 1010 s-1 is obtained, and a modest decrease with increasing exciplex energy is noted. The data predict and it is confirmed that charge transfer plays a significant role in the nonradiative decay of singlet oxygen in solvents as difficult to oxidize as toluene-d8 and mesitylene. It is also confirmed that N,N,N‘,N‘-tetramethyl-p-phenylene diamine quenches O2(1Δg) nearly exclusively by full electron transfer in D2O, but electron transfer is not observed in other solvents.
Does Diversification Matter for Economic Performance? An Empirical Analysis

This paper examines several dimensions of the relationship between diversification and performance. Specifically, we investigate the link between related and unrelated diversification and performance. We also study the effect of the potential redeployment of ‘plastic’ assets on unrelated diversification. To investigate this, we estimated a dynamic panel on a data set of 2,396 diversified firms from the euro area, over the 2010-2017 sampling period. Empirical results indicate that an increase in the level of unrelated diversification, is significantly associated with an 0.32 percent improvement in performance, and related diversification with an 0.41 percent increase in performance. Additionally, we found that an increment in the level of asset plasticity is significantly associated with a 1.54 percent increase in the level of unrelated diversification, and a 0.84 percent increase in the level of related diversification. Overall, our findings contribute to the corporate diversification literature by documenting that both, related and unrelated diversification, impact positively performance. Moreover, providing evidence consistent with the intuition that asset plasticity may be a positive factor for unrelated and related diversification strategies.
Beliefs and the Disposition Effect

This study examines whether heterogeneous beliefs contribute to the incidence of the disposition effect. We measure individuals’ optimism using elicited beliefs from incentivized experiments and surveys and link these measures to investment decisions using administrative register data. We find that optimistic beliefs lead to both a higher allocation of wealth to risky assets and a higher incidence of the disposition effect. We further find that subjective beliefs explain heterogeneity in the disposition effect which are not captured by risk preferences. Overall, our study documents that individuals’ beliefs play an important role in the prevalence of the disposition effect.
Coordination via Delay: Theory and Experiment

This paper proposes a new communication protocol in coordination games with binary actions and Pareto-ranked equilibria, which comes from an option to delay. In the first period, players choose between committing to the risk-dominant (safe) action in the game or delaying their choices until a second period. Players who wait then choose between the risk-dominant and payoff-dominant (efficient) actions in the second period. The delay option enables forward-induction reasoning to operate in the game, whereby a player’s decision not to choose the risk-dominant action in the first period signals an intention to choose the payoff-dominant action in the second period. We assume that players have e-social preferences, which means that they do not choose strategies that hurt other players if there are no benefits to themselves. Under this assumption, iterated weak dominance yields a unique strategy profile whereby each player waits in the first period and chooses the payoff-dominant action in the second period if and only if everyone else waited. That is, efficient coordination is achieved. In an experiment, we find that most subjects adopt the unique iteratively undominated strategy, and, thus, the introduction of the delay option significantly promotes efficient coordination.
Household Liquidity Constraints and Labor Market Outcomes: Evidence from a Danish Mortgage Reform

We study the causal effect of liquidity constraints on individual labor market outcomes by exploiting the 1992 mortgage reform in Denmark, which for the first time allowed homeowners to borrow against housing equity for nonhousing purposes. Following the reform, liquidity‐constrained homeowners increased debt levels and had higher earnings growth and lower employment rates. The option to borrow against housing equity enabled liquidity‐constrained individuals to move to high‐wage jobs and invest in valuable human and physical capital. The results imply that relaxing household liquidity constraints during recessions can create better job matches, potentially increasing earnings and output in the longer run.This article is protected by copyright. All rights reserved
Is weather a systematic risk? Evidence from annual reports

Recent research shows that weather events impact firms' operational and financial performance, raising the question of whether investors can diversify weather risk. We show that firms' exposure to weather is a systematic non-diversifiable risk, and that this risk is economically significant. We conduct a linguistic analysis of annual reports to derive a new time-varying measure of firm-level exposure to weather. Key innovations of our measure are that it can be easily computed for all public firms and it captures a broad spectrum of weather conditions (as opposed to any single weather condition such as temperatures or rainfalls). We conjecture and find several systematic patterns of our weather measure in our sample. We then create a systematic risk factor based on our measure and show that exposure to this factor is strongly priced by the market. Our study highlights the economic importance of weather risk and also answers calls by recent studies to build new climate factors and new large-sample measures of firm-level exposure to weather.
A New Dimension in Global Value Chains: Control vs. Delegation in Input Procurement

We study the optimal organizational structure of a firm in a sequential supply chain when investments are relationship specific and contracts are incomplete. The market structure for the final product is monopolistic competition. Production follows a preordered sequence and exhibits high complementarity between stages. There are three types of actors: upstream suppliers, downstream suppliers and final-good producers (firms). In designing their organizational structure, firms in each stage choose not only the ownership structure, i.e., vertical integration versus outsourcing, but also the input-procurement strategy, i.e., delegation versus control. The separation of asset ownership and input-procurement rights leads to a novel organizational mode, which we call `outsourcing with delegation. ' We determine the implications of this new organizational mode in firms' global sourcing decisions.
Does consumer protection regulation benefit shareholders? Evidence from data breach disclosure laws and the cost of equity

We exploit state-level variation in data breach disclosure laws to study whether shareholders benefit from consumer protection regulation. While the intended purpose of these laws is consumer protection, we argue that the laws can help reduce shareholder risk through both a real effects channel (i.e., encouraging firms to prioritize cybersecurity) and a capital markets channel (i.e., serving as a commitment to disclose). Consistent with these arguments, we find an on-average decrease in shareholder risk, proxied by cost of equity, after the staggered passage of these laws. We also find the effect is stronger for firms that did not prioritize cybersecurity before the laws and for firms with ex ante worse information environments. Finally, after passage of these laws, firms are more likely to have an IT security officer and increase IT investments. Our collective evidence suggests that consumer protection regulation, in the form mandated disclosure to other stakeholders, benefits shareholders.
Correcting Present Bias in Saving Decisions with FinTech∗

Present biased and time-inconsistent preferences are often pointed to as the main psychological reasons behind individuals’ under-saving. In this paper, we study the effectiveness of soft, self-designed commitment devices, i.e. saving goals, in increasing individuals’ savings using data from a FinTech App. We establish that setting goals increases individuals’ saving rate and show that the effect is causal using a difference-in-differences identification strategy that exploits the random assignment of users into a group of beta-testers that can set goals and a group of users that cannot. We also show that the increased savings within the App do not come at the expense of reduced savings outside the App. We explore the economic channels of our results by matching App user survey responses to their behavior and highlight the importance of a monitoring channel, consistent with models where agents experience disutility from falling short of their goal.
The Idiosyncratic Volatility Puzzle with Learning and Asymmetric Signal Precision

We document that the idiosyncratic volatility (IVOL) puzzle exists only among firms that underperform their benchmark or release negative earnings surprises. We explain these findings using a Bayesian updating model with asymmetric signal precision in which agents observe noisy signals about future cash flows. In this setting, negative news are associated with relatively lower signal precision, negative momentum, and low subsequent returns. After controlling for relative performance (our proxy of news) and signal precision, the IVOL puzzle disappears. This performance- and signal-precision-based explanation alone can account for up to 83% of the IVOL puzzle, which is more than other existing theories combined.
Quantifying Diseconomies Of Scale For Mutual Funds

The fund size is highly persistent and correlated with risk factor loadings. Hence, it is unrealistic to assume constant diseconomies of scale over a long time. The traditional two-step method underestimates the uncertainty of diseconomies of scale. We propose a one-step procedure with a random weighted bootstrap method to infer diseconomies of scale using rolling windows, which effectively solves the problems. Our empirical analysis using actively-managed U.S. equity mutual funds supports diseconomies of scale, and simulations show that our rigorous method outperforms the two-step one in terms of precise estimating uncertainty. <br>
Forecasting the Equity Premium with Frequency-Decomposed Technical Indicators

Technical trading rules are widely used by practitioners to forecast the U.S. equity premium. I decompose technical indicators into components with frequency-specific information, showing that the predictive power comes from medium-frequency variation in buy and sell signals, without much evidence of predictability outside of this frequency band. This pattern can be observed for commonly used strategies based on volume, momentum, and moving-average rules. A mean-variance investor who only forecasts with these medium-frequency components generates economically sizable gains compared to the historical average and the basic technical indicators. Combined forecasts from filtered indicators provide utility gains that are often twice as large as gains from the basic indicators. I show that the improvements mainly result from a better market timing around recessions. Overall, the choice of frequency matters more than the choice of technical indicator. I provide evidence that filtered buy and sell signals increase economic gains for several country indices, thereby ruling out data-snooping concerns.
Does Learning About Low GAAP Reporting Quality Change Investors' Perceptions of Aggressive Non-GAAP Reporting Choices?

Material financial restatements reveal GAAP-based misreporting and thus are a strong signal of low GAAP reporting quality. We explore these reporting shocks and investigate whether heightened investor scrutiny of GAAP reporting quality after material restatements has a spillover effect on investors’ perceptions of aggressive non-GAAP reporting choices. We find that investors reward aggressive non-GAAP reporting choices before material restatements (i.e., ERC premium) but penalize the same reporting choices after material restatements (i.e., ERC discount). Furthermore, we document that short- and long-term market reactions to material restatements are more negative for firms that aggressively reported non-GAAP earnings before the announcement of material restatements. We provide evidence that heightened investor scrutiny of GAAP reporting quality affects investors’ perceptions of aggressive non-GAAP reporting choices. Finally, our findings are consistent with the idea that aggressive non-GAAP reporting choices misled investors before material restatement announcements.
Do Cross-Sectional Predictors Contain Systematic Information?

Abstract Firm-level variables that predict cross-sectional stock returns, such as price-to-earnings and short interest, are often averaged and used to predict market returns. Using various samples of cross-sectional predictors and accounting for the number of predictors and their interdependence, we find only weak evidence that cross-sectional predictors make good time-series predictors, especially out-of-sample. The results suggest that cross-sectional predictors do not generally contain systematic information.
Equity Trading Activity and Treasury Bond Risk Premia

Abstract We link equity and treasury bond markets via an informational channel. When macroeconomic state shifts are more probable, informed traders are more likely to have valid signals about fundamentals, so that uninformed traders are less willing to trade against informed ones. This implies low volume and high volatility, that is, a high volatility–volume ratio (VVR). Central banks react to state shifts, but their actions are uncertain. Therefore, a higher state shift likelihood implies larger bond risk premia. These arguments together imply that VVR should positively predict bond excess returns. We empirically test and confirm this prediction, both in- and out-of-sample.
Activism in UK small-cap stocks

Activists appear to play an important governance role, but identifying it empirically remains challenging. We examine a private dataset of engagements in small UK companies in the 2008- 15 period. Our activist receives a blind portfolio; has low incentives and financial resources; engages alone, behind-the-scenes; and deals in illiquid under-researched firms. These features help us to focus on the treatment (as compared to the selection) effect. Consistent with a positive governance effect of shareholder activism, we find that the engagements generate positive annual returns for the period (+1.4%), especially in confrontational situations (+4.9%), and have persistent impacts on firms’ operating performance.
Stable Randomization

We design a laboratory experiment to identify whether a preference for randomization defines a stable type across different choice environments. In games and individual decisions, subjects face twenty simultaneous repetitions of the same choice. Subjects can randomize by making different choices across the repetitions. We find that randomization does define a type that's predictable across domains. A sizable fraction of individuals randomize in all domains, even in questions that offer a stochastically-dominant option. For some mixers, dominated randomization is responsive to intervention. We explore theoretical foundations for mixing, and find that most preference-based models are unable to accommodate our results.
Risk, Monetary Policy and Asset Prices in a Global World

Since the global financial crisis, there has been renewed interest in understanding how monetary policy shocks transmit across countries through risk variables, spurring a literature on the "global financial cycle. " This paper studies how (conventional and unconventional) monetary policy shocks affect risk and uncertainty in three large economies: the US, euro area, and Japan. We construct measures of financial risk factors for each country by decomposing option-implied variances of the stock market into a conditional variance component ("uncertainty") and a variance risk premium component (which is more closely associated with risk aversion). The conditional variance component is computed using a novel non-linear forecasting model. We then analyze monetary policy effects on risk and uncertainty. We do not find evidence that US monetary policy affects risk or uncertainty in the other countries. Instead, we provide evidence of significant spillovers through interest rates. We find limited evidence of cross-country monetary policy spillovers to the major asset classes (stocks, bonds, exchange rates, commodities), but rather strong evidence of non-monetary policy-driven risk aversion and uncertainty shocks transmitting across all countries (not just emanating from the US).
Uncertainty trends

The volatility of total factor productivity (TFP) is shown to have similar long-run predictive ability for market returns to the dividend price ratio. When seen through an asset pricing lens, this finding implies that TFP volatility should also predict real cash flows and/or real interest rates: it is found to mainly predict real cash flows through inflation rates. A model with endogenous growth, Epstein-Zin preferences and price rigidities reconciles both uncertainty-driven long-run predictability and its real implications. Within the model we justify why alternative no- tions of uncertainty have similar predictive ability as TFP volatility provided their low-frequency signal is extracted.
Let the Rich Be Flooded: The Distribution of Financial Aid and Distress after Hurricane Harvey

Outside of flood hazard zones, households must decide whether to insure or rely on disaster assistance to manage flood risk. We use the quasi-random flooding generated by Hurricane Harvey, which hit Houston in August 2017, to understand the implications of flood losses for households with differing access to insurance and credit. Outside the floodplain, credit-constrained homeowners experience substantial increases in bankruptcy and delinquency in flooded areas relative to not-flooded areas. Treatment effects inside the floodplain are universally insignificant, implying that flood insurance mitigates the financial impact of flooding across the credit distribution. Disaster assistance, on the other hand, does not appear to counteract the role of initial inequalities on post-disaster credit outcomes. We find both SBA disaster loans and, more surprisingly, FEMA grants to be regressive in allocation. Our results highlight that averages mask important heterogeneity after disasters, which challenges existing narratives of how effectively Federal disaster programs mitigate the financial burden of natural disasters.
Hedge Funds and the Positive Idiosyncratic Volatility Effect

While it is established that idiosyncratic volatility has a negative impact on the cross-section of future stock returns, the relationship between idiosyncratic volatility and future hedge fund returns is largely unexplored. We document that hedge funds with high idiosyncratic volatility outperform and this pattern is explained by the positive return effect of idiosyncratic volatility in their equity portfolio holdings. Hedge funds select stocks wisely. They pick high volatility stocks when they are undervalued or when they experience positive earnings surprises in the future. They shy away from high volatility stocks when they are overvalued or when they display lottery-like payoffs. Hedge funds also trade derivatives in a way to profit from the positive volatility effect.