Stochastic modelling of herd behaviour indices

This paper proposes different diffusion processes to model herd behaviour indices such as the Herd Behaviour Index (HIX). These models arise by combining popular mean-reverting processes with simple algebraic functions mapping the definition domain of the underlying mean-reverting process to the unit interval. The so obtained Itô processes preserve, to some extent, the mean-reverting trend of the underlying process while satisfying the fundamental properties of the so-called herd behaviour indices. In a numerical study, we calibrate the different model settings to time series data for a period spanning from January 2000 until October 2009 and investigate their ability to predict the future behaviour of herd behaviour indices.     

A comprehensive model of information search and processing behaviour of mutual fund investors

Understanding the investment behaviour, specifically information search and processing behaviour of mutual fund (MF) investors is a key to the effective marketing of MF schemes, and yet we have only limited understanding of it. This study proposes and validates a model of information search and processing of MF investors. The proposed model is arrived at by combining the limited insights from the existing studies dispersed across multiple domains of literature, viz., Traditional Finance, Behavioural Finance and Consumer Behaviour. The model suggests that: (i) MF investors’ subjective knowledge (SK) negatively impacts their perceived purchase risk (PPR); (ii) MF investors’ SK positively impacts their purchase decision involvement (PDI); (iii) PPR negatively impacts their PDI; (iv) PDI positively impacts their depth of information search (DIS) and information processing behaviour (DIP); and (v) DIS positively impacts their DIP. The model is empirically validated through structural equation modelling of data collected from a survey of 268 MF investors. The implications of the model, as are relevant for the MF marketers and the policymakers, are also discussed.     

Factors affecting investment intentions: A consumer behaviour perspective

The purpose of this study is to examine investors’ decision-making from the perspective of a consumer using constructs commonly found in the consumer behaviour field. An investment intentions model incorporating product knowledge, product involvement, risk and uncertainty avoidance, and mediated by perceived risk and uncertainty, was developed and analysed using structural equation modelling. The research found that product knowledge and product involvement had the greatest impact on intentions, suggesting the applicability of these constructs in finance research. Perceived risk was the only mediating construct. The model explained more than 60 per cent of the variation in intentions. A major contribution of this research came from the development of an investment intentions model to examine retail investors’ investment decision-making processes from a consumer behaviour perspective. It helps practitioners to develop a better understanding of the factors that impact on their clients’ intentions to invest in the stock market. This study is the first to include a set of consumer behaviour constructs in an investment intentions model that was not examined before, despite the close relationship between behavioural finance and consumer behaviour that includes elements of psychology and sociology in individual decision-making.     

Social cognition and personality traits related to risky driving in a Turkish sample

Aims: The aim of the study was to make a theoretical contribution by investigating social cognitive factors and personality traits related to risky driver behaviour in a Turkish sample. The study tested three theoretical models by Structural Equation Modelling: (1) a model using risk perception and attitudes towards traffic safety to predict driver behaviour, (2) a model which used normlessness and sensation-seeking traits to predict such behaviour and (3) a model which used both the social cognitive factors and personality traits to predict driver behaviour. Methods: A questionnaire survey with validated measurement instruments was conducted in a sample of Turkish drivers (n?=?213). The response rate was 61%. Results: A combined social cognitive and personality trait model had tolerable fit and explained 24% of the variance in driver behaviour. The relations between personality traits and risk perception with driver behaviour were mediated through attitudes towards traffic safety. Risk-taking personality traits had relatively strong relations to unsafe driver behaviour, whereas risk perception had a relatively weak relation to such behaviour. Conclusions: A combined social cognitive and trait approach may be efficient in human factor campaigns aimed to reduce risky driver behaviour in Turkey. Personality traits may be important for driver behaviour because they influence the attitudinal determinants of such behaviour. Increased police enforcement of road traffic regulations may reduce risky driving among individuals with normlessness and sensation-seeking traits. Personality traits may also guide efforts aimed at early identification of risky drivers and campaigns could be tailored to specific personality characteristics.     

Dividend persistence and dividend behaviour

This article demonstrates how a spurious regression problem caused by dividend persistence is compounded by a spurious correlation problem when the dependent and independent variables in dividend behaviour regressions are ratios composed of common component variables. This article utilises a simulation procedure to take account of these problems, with the findings implying that extreme care should be taken when using ratios as predictor or explanatory variables in time series regression. This article introduces a reformulated Lintner first difference dividend behaviour model that is not subject to spurious regression in which past prices predict subsequent changes in dividends.     

Cross-selling,switching costs and imperfect competition in British banks

This paper attempts to evaluate the competitiveness of British banking in the presence of cross-selling and switching costs during 1993–2008. It presents estimates of a model of banking behaviour that encompasses switching costs as well as cross-selling of loans and off-balance sheet transactions. The evidence from panel estimation of the model indicates that the consumer faced high switching costs in the loan market in the latter part of the sample period, as a result of weaker competitiveness in the loan market. Additionally, the weaker competitiveness in the loan market appears to facilitate the cross-selling behaviour of British banks, which helps explain the rapid growth of non-interest income during the last two decades.     

The relationship between lack of controllability and proactive work behaviour: an empirical analysis of competing theoretical explanations

The controllability principle suggests evaluating managers solely based on performance measures they can control. In practice, however, companies often disregard this principle. Therefore, our study addresses organisational benefits linked to the lack of controllability in measures used for managers’ performance evaluations. We draw on important case-based findings to establish a positive ‘base relationship’ between lack of controllability and proactive work behaviour. We test this base relationship with a large-scale sample and find that companies encourage higher levels of proactive work behaviour when they rely on less controllable performance measures. Drawing on recent developments in role theory, we advance previous research and extend the base model by including the theoretical construct of flexible role orientation. We examine different mechanisms through which flexible role orientation potentially impacts the base model. Using survey responses from 432 managers, we find evidence for a mediation model as opposed to an interaction model. Specifically, we find that lack of controllability enhances role conflict, which in turn induces more flexible role orientations ultimately resulting in higher levels of proactive work behaviour.     

Stockbot: a monitoring and acting software agent for stock markets

Stockbot is a software agent designed for the task of monitoring an electronic stock market in order to execute investor purchase or sale orders. Stockbot represents a tool for managing the dynamical complexity of electronic stock markets by establishing a virtual portfolio manager. Its main goal is to exhibit a behaviour which is a timely, continuous, dynamical response to changes in the market situations in accordance to the user profile and goals. The software agent maintains and dynamically updates a user model which records histories of previous user orders, patterns of user observed behaviour, and user preferences and goals. The software architecture integrates conventional and knowledge-based software technologies such as conditional and iterative planning, continuous conditions monitoring, robust failure management, inter-agent communication primitives and events networks. A Dynamical Query Language is used to describe stockbot behaviour. Copyright © 1999 John Wiley & Sons, Ltd.     

Can a real business cycle model without price and wage stickiness explain UK real exchange rate behaviour?

This paper establishes the ability of a Real Business Cycle model to account for UK real exchange rate behaviour. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a time-series representation of the real exchange rate, as well as for various key data moments. The results suggest RBC models can explain real exchange rate movements.     

Dynamics of financial markets and transaction costs: A graph-based study

In financial markets, trading patterns influence the behaviour of arbitrage, surveillance, risk management and pricing returns. The analysis of these patterns is important for defining policies in financial regulation as well as portfolios of international assets. Using financialization as a conceptual framework to understand the current trading patterns of financial markets, this work employs a market graph model for studying the stock indexes of geographically separated financial markets. By using an edge creation condition based on a transaction cost threshold, the resulting market graph features a strong connectivity, some traces of a power law in the degree distribution and an intensive presence of cliques. Furthermore, an inverse relation between transaction costs and maximal clique size is noticed. The market graph model also indicates that infrastructure, sustainability and commodity indexes from APEC, EU and NAFTA affect the behaviour of markets. As a result, the graph approach shows a consistent set of outcomes that mostly explain the financialization dynamics of markets.     

The Effect of Uncertainty on Optimal Control Models in the Neighbourhood of a Steady State

For both discrete and continuous time this paper derives the Taylor approximation to the effect of uncertainty (in the simple sense of risk, not Knightian uncertainty) on expected utility and optimal behaviour in stochastic control models when the uncertainty is small enough that one can focus on only the first term that involves uncertainty. There is a close and illuminating relationship between the discrete-time and continuous-time results. The analysis makes it possible to spell out a tight connection between the behaviour of a dynamic stochastic general equilibrium model and the corresponding perfect foresight model. However, the quantitative analytics of the stochastic model local to a certainty model calls for a more thorough investigation of the nearby certainty model than is typically undertaken.     

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

With governments redistributing more responsibilities unto citizens, individuals have an increasing need for financial resources acting as a buffer against life’s setbacks and unexpected expenditures. The purpose of this study was to examine psychological determinants of saving for a financial buffer, for which a theoretical model was formulated based on the theory of planned behaviour with three new, domain-specific psychological constructs: financial risk tolerance, regulatory focus and perceived saving barriers. Data were collected with an online questionnaire that utilised convenience and snowball sampling to target both students and working individuals (N = 272). Regression analyses offered support for the proposed model, showing that participants’ financial risk tolerance (i.e. an individual’s attitude towards financial risk taking) was significantly associated with their subjective financial knowledge and regulatory focus. Furthermore, perceived financial self-efficacy and financial risk tolerance both predicted participants’ intention to save for a financial buffer. In turn, perceived financial self-efficacy and saving intention predicted self-reported saving behaviour. Importantly, perceived saving barriers mediated the relationship between saving intention and self-reported saving behaviour. In line with the proposed model, results also showed that a specific attitude-based construct (financial risk tolerance) is a considerably better predictor of saving intention than general measures of attitude towards saving. This study is also the first to demonstrate that regulatory focus influences financial risk tolerance. Implications of these findings for stimulating saving behaviour are discussed.     

6. The capital and industrial output sub-system

The World 3 model has an acknowledged sensitivity to the capital sector. It predicts catastrophe. But the great weakness of the capital sub-system is that it assumes inflexible relationships and constants throughout which make overshoot and collapse typical modes of behaviour of the model. It excludes the possibility of adaptive flexible response to changing circumstances—one of the main characteristics of real world behaviour of the economy.     

Alternative approaches to the theory of the banking firm

During the past decade, the importance of a sound microeconomic foundation for aggregate economic analysis has been increasingly emphasized. In this context, a satisfactory theory of bank behaviour appears as an indispensable prerequisite for a clear understanding of the workings of the financial sector of the economy. This has led to the development of a substantial literature attempting to model and explain the behaviour of banking firms. This paper presents a survey and discussion of the various approaches which can be found in this literature. A special effort is made to present an integrated view of the real resource and financial aspect: of banking activities.     

The association between transformational leadership in German hospitals and the frequency of events reported as perceived by medical directors

This paper aimed to evaluate how transformational leadership behaviour is associated with patient safety culture in a hospital context. In line with findings from other high-hazard industries, we predicted that in hospitals, executives’ perceived emphasis on transformational behaviour would positively influence the frequency of events reported by staff on the front line of service provision. Our hypothesis was confirmed by fitting a multivariable regression model to a sample of 507 medical directors of German acute-care hospitals. Results revealed transformational leadership in hospitals was a significant predictor of the reporting frequency of safety events, as perceived by medical directors. Our findings highlighted the critical role that executive behaviour plays in staff participation in patient safety initiatives. Preventing patients from unintended harm can then be traced back to the organisational level that is the farthest away from direct patient interaction. Consequently, these findings may provide guidance for hospitals aiming to raise employees’ awareness of patient safety and prevent unintended patient harm prospectively.     

Sequential Monte Carlo for fractional stochastic volatility models

In this paper, we consider a fractional stochastic volatility model, that is a model in which the volatility may exhibit a long-range dependent or a rough/antipersistent behaviour. We propose a dynamic sequential Monte Carlo methodology that is applicable to both long memory and antipersistent processes in order to estimate the volatility as well as the unknown parameters of the model. We establish a central limit theorem for the state and parameter filters and we study asymptotic properties (consistency and asymptotic normality) for the filter. We illustrate our results with a simulation study and we apply our method to estimate the volatility and the parameters of a long-range dependent model for S& P 500 data.     

Herding behaviour and volatility clustering in financial markets

We propose a financial market model in which speculators follow a linear mix of technical and fundamental trading rules to determine their orders. Volatility clustering arises in our model due to speculators’ herding behaviour. In case of heightened uncertainty, speculators observe other speculators’ actions more closely. Since speculators’ trading behaviour then becomes less heterogeneous, the market maker faces a less balanced excess demand and consequently adjusts prices more strongly. Estimating our model using the method of simulated moments reveals that it is able to explain a number of stylized facts of financial markets quite well. Various robustness checks with respect to the model setup reveal that our results are quite stable.     

Budgetary biasing in organizations: Theoretical framework and empirical evidence

The purpose of this study is to increase the understanding of budgetary biasing behaviour. The findings are of both a theoretical and empirical nature. The theoretical results provide a framework containing two major parts: an explanatory model of budgetary biasing at the individual level, and an organizational model for budgetary biasing. In the empirical part of the study an attempt is made to test the usability of the framework in a relatively large firm with several profit-centers. Biasing action is found to be a result of an interplay of various inter-related factors. Overall, the framework is considered to provide a valid basis for trying to understand and interpret the budgetary biasing behaviour in the firm studied.     

Eine Analyse ultimaten Verhaltens als Erklärungsansatz des moral hazards

For the insurance industry the moral hazard poses an incalculable risk. Changes in the behaviour of the insuree can lead to higher claims settlements and thus to higher premiums for the insured collective. Asymmetrically allocated information gives the insured individual the possibility to profit from the idea of common protection in a way that impairs insurer and the collective on the whole. Based on the homo oeconomicus model, economic concepts, first and foremost the agency theory of new institutional economics have made attempts to provide solutions for this management problem. However, behavioural economic experiments have demonstrated that the homo oeconomicus model does not fully succeed in describing the realities. As a result, the solutions proposed in these economic concepts have to be rated inadequate.The moral hazard is inherent in the conflicting realm of cooperation and defection, behaviour patterns that have evolved during the history of development of human behaviour. Ultimate behaviour analyses of these patterns do offer the opportunity to understand why humans behave in specific ways based on man's evolutionary origins and sources. Consequently, ultimate behaviour analyses could provide a solid foundation for the development of a framework giving insurers the possibility to exert influence on the insuree's behaviour and thus to assist in successfully impacting the moral hazard.     

Insolvent trading and voluntary administration in Australia: economic winners and losers?

Australian directors who incur debts while their companies are insolvent can be pursued by the corporate regulator for compensation when their companies fail. Under the Australian insolvent trading laws, directors no longer experience ‘true’ limited liability, and as expected, they adjust their behaviour as a result. Identifying director's rational behaviour in an insolvent trading world is difficult as there are no formal economic models of director decision-making under Australian current corporate law. In this paper, we develop such a model primarily for private companies. We incorporate the threat of insolvent trading as well as director's tactical use of voluntary administration to avoid insolvent trading litigation. We show that neither a combination of insolvent trading or voluntary administration can simultaneously ensure creditors-best outcomes, eliminate insolvent trading and reduce director underinvestment.