Effects of market returns and market volatility on investor risk tolerance

The 2008 credit market debacle and subsequent “Great Recession” accompanied by the stock market crash of 2008 has caused many investors and their advisors to reevaluate their risk tolerance and investment asset allocation choices. Additionally, marketers for many financial institutions and investment advisors are rethinking the strategies and tactics they use for both individual and corporate clients about the level of risk that is appropriate to meet their investment objectives. This research shows that an investor’s risk tolerance is not as stable as it has been portrayed previously in the literature and can be affected by both the direction of movement and the volatility in the market. In addition, this research provides some suggestions on how to frame investment decisions for individual investors to better assess their actual risk tolerance in the face of a volatile market.     

Social versus psychological brand community: The role of psychological sense of brand community

In the quest for building long-term successful brands, many marketers have become increasingly interested in how to create and foster successful communities of brand users. The appeal of such an approach to relationship marketing lies in the recognition that members of brand communities tend to exhibit favorable brand-related behaviors and intentions. Research examining the social influence and creation of such social relationships among admirers of a brand has revealed substantial insights about the social processes that underlie customers' involvement in brand communities. Curiously, the psychological underpinnings of a customer's perception of community with other users of the brand remain unexplored. We offer the perspective that the observable, core components of brand community outlined in previous research may represent markers of social brand communities, while psychological brand communities may be characterized by an unobservable, psychological sense of community that could precede, or even work in lieu of, social interaction.     

A method for finding the maximal set in excess demand

We present a polynomial time method for identifying the maximal set in excess demand at a given payoff vector. This set can be used in “large” partnership formation problems to identify the minimum element in the set of individually rational payoff vectors at which there is no overdemanded set of agents. This minimum element corresponds to the minimum Walrasian equilibrium price vector in a special case of the partnership formation problem.     

Conditional risk and performance evaluation: Volatility timing, overconditioning, and new estimates of momentum alphas

Unconditional alphas are biased when conditional beta covaries with the market risk premium (market timing) or volatility (volatility timing). We demonstrate an additional bias (overconditioning) that can occur any time an empiricist estimates risk using information, such as a realized beta, that is not available to investors ex ante. Calibrating to U.S. equity returns, volatility timing and overconditioning can plausibly impact alphas more than market timing, which has been the focus of prior literature. To correct market- and volatility-timing biases without overconditioning, we show that incorporating realized betas into instrumental variables estimators is effective. Empirically, instrumentation reduces momentum alphas by 20-40%. Overconditioned alphas overstate performance by up to 2.5 times. We explain the sources of both the volatility-timing and overconditioning biases in momentum portfolios.     

Economics at the FTC: Physician Acquisitions, Standard Essential Patents, and Accuracy of Credit Reporting

Economists at the Federal Trade Commission pursue the agency’s competition and consumer protection missions. In this year’s essay, with respect to antitrust we discuss the analysis that is used in two areas where the Commission has recently been active: physician combinations and standard essential patents. In consumer protection, we discuss the FTC’s recently released national study of the accuracy of consumer credit reports.     

Exploring the antecedents and consumer behavior consequences of the trait of superstition

In two exploratory studies, a hierarchical model of personality was employed to investigate a number of possible trait antecedents and consumer‐behavior–related consequences of superstition. One of the interesting findings was that the antecedents of superstition include a lower need for learning among older adults, higher levels of sports interest, a belief in fate, and a decreased belief in heaven and hell. In addition, the results suggested that the consequences of superstition might include beliefs in astrology, magic, psychokinesis, and the existence of fictitious creatures (e.g., the Loch Ness monster). Evidence suggesting a negative association between superstitious beliefs and attitudes concerning the genetic engineering of food products was also obtained. © 2003 Wiley Periodicals, Inc.     

Managing Resistance Evolution in Two Pests to Two Toxins with Refugia

We use a regulatory model with resistance evolution in two pests to insecticidal Bt cotton and pyrethroids (a conventional insecticide) to examine non-Bt cotton (refuge) planting requirements designed to manage Bt-resistance evolution in the midsouth. Our analysis suggests that reduced refuge requirements would enhance producer profitability, sprayed refugia are more cost effective than unsprayed refugia, and producers would receive slightly higher returns under dynamic relative to static refuge policies. Pyrethroid susceptibility in one of the pests was a renewable resource, and toxin-mixture effects associated with pyrethroid use in Bt cotton were important considerations for midsouth refuge policies.     

Item Sequence and Student Performance on Multiple-Choice Exams: Further Evidence

Evidence from microeconomics principles classes suggests that students' test scores may be influenced by the order in which content is presented in questions.