A comparison of buy‐side and sell‐side analysts

There is very little research on the topic of buy-side analyst performance, and that which does exist yields mixed results. We use a large sample from both the buy-side and the sell-side and report several new results. First, while the contemporaneous returns to portfolios based on sell-side recommendations are positive, the returns for buy-side analysts, proxied by changes in institutional holdings, are negative. Second, the buy-side analysts' underperformance is accentuated when they trade against sell-side analysts' recommendations. Third, abnormal returns positively relate to both the portfolio size and the portfolio turnover of buy-side analysts' institutions, suggesting that large institutions employ superior analysts and that superior analysts frequently change their recommendations. Abnormal returns are also positively related to buy-side portfolios with stocks that have higher analyst coverage, greater institutional holding, and lower earnings forecast dispersion. Fourth, there is substantial persistence in buy-side performance, but even the top decile performs poorly. These findings suggest that sell-side analysts still outperform buy-side analysts despite the severe conflicts of interest documented in the literature.     

Is your brand''s loyalty too much, too little, or just right?: Explaining deviations in loyalty from the Dirichlet norm

This paper formally investigates the factors that relate to the deviations of brand's actual loyalty levels from theoretical norms in packaged goods markets. An aggregate measure of brand loyalty, share of category requirements, commonly tracked by marketing managers is used for this analysis. The comparison is conducted against the estimated share of requirements provided by the well established Dirichlet model of purchasing behavior. We posit that a brand's positioning strategy and marketing mix can influence the magnitude and the direction of the deviation from the norm. We use a two step modeling procedure where we first compute the deviation from the norm for each brand and subsequently conduct a regression analysis of this brand-level data to test the proposed hypotheses. We find that on average, brands that cater to some market niche, are bought in higher quantities, have lower prices, promote to a lesser extent, and have shallower price-cuts and enjoy higher than expected loyalty levels. We discuss possible implications of these results and offer guidelines that managers can use to better assess both the actual and the theoretical loyalty levels of their brands.     

Small Firms and Unemployment in a Two-sector Model

This paper presents a two-sector model of an economy – one sector consisting of large firms with institutionally determined wage (the Formal sector) and the other sector consisting of small firms (the Informal sector). The paper examines the effects of changes in benefits, entrepreneurial zeal, and the institutionally determined wage in the Formal sector on unemployment. It concludes with brief comments on the role of aggregate demand and supply policies in reducing unemployment in this economy.     

Evaluating treatment protocols using data combination

In real life, individuals are often assigned to binary treatments according to existing treatment protocols. Such protocols, when designed with “taste-based” motives, would be productively inefficient in that the expected returns to treatment for a marginal treatment recipient would vary across covariates and be larger for discriminated groups. This cannot be directly tested if assignment is based on more covariates than the researcher observes, because then the marginal treatment recipient is not identified. We present (i) a partial identification approach to detecting such inefficiency which is robust to selection on unobservables and (ii) a novel way of point-identifying the necessary counterfactual distributions by combining observational datasets with experimental estimates. These methods can also be used to (partially) infer risk-preferences which may rationalize the observed treatment allocations. Specifically, existing healthcare datasets can be analyzed with the proposed tools to test the allocational efficiency of medical treatments. Using our methodology on data from the Coronary Artery Surgery Study in the US, which combined experimental and observational components, we find that after controlling for age, smokers in the observational dataset had to overcome a higher threshold of expected survival relative to nonsmokers in order to qualify for surgery.     

On myopia as rationale for social security

It has been argued that “paternalistically motivated forced savings constitutes an important, and to some the most important, rationale for social security retirement systems.” This paper revisits the role played by myopia in generating a theoretical rationale for pay-as-you-go (PAYG) social security in dynamically efficient economies. If the competing asset is linear storage and myopic agents are allowed to borrow against future pension benefits, there is no welfare-rationale for PAYG pensions. Sufficiently strong myopia may justify such pensions only if agents cannot borrow against their future pension, but then they are at a zero-saving corner. With enough myopia, co-existence of positive optimal pensions and positive private saving is possible if the return to saving declines with saving, as in a model with a neoclassical technology.     

Optimal restructuring under a political constraint

This paper considers the generalised second-best analytics of optimal restructuring under a political constraint, building on the modelling approach in Dehejia (1997, CEPR Discussion Paper No. 1552, Centre for Economic Policy Research, London, January 1997). It is shown that the second-best optimum entails administering the terms-of-trade shock fully at the initiation of the reform, just as in shock therapy, but that this must be supplemented with interventions in domestic factor markets. The effects of these interventions are to speed up the exit of the politically affected factor, labour, and to retard the exit of the other factor, capital, both of which serve to prop-up the wages of workers in the declining sector and hence address the political constraint. The results are in the spirit of the neoclassical theory of distortions and welfare: the optimal intervention targets the affected margin directly, in consonance with the ‘targeting’ principle of Bhagwati–Ramaswami–Johnson.     

Strategic learning and entry-equilibrium

This paper describes the nature of equilibrium for a dynamic game between a monopolist and an entrant who adopts a learning strategy for cost reduction. The learning process is characterized as a continuous-time Poisson process where each success reduces a part of the entrant's cost difference with the incumbent. The entrant chooses a stream of expenditure after every success to control the instant probability of the next success. The techniques of semi-Markov decision processes are used to characterize equilibrium learning decisions at every stage, distribution of entry times, and the effects of subsidies, technical progress, etc. on pre-entry and post-entry learning strategies.     

Exchange rate pass-through and relative prices: An industry-level empirical investigation

In this paper we explore the extent of exchange rate pass-through for the USA, UK and Japan using a post-Bretton Woods industry-level dataset. We investigate how different channels of exchange rate pass-through affect domestic and import prices. Our analysis is suggestive of two channels of transmission and we find considerable variation in the extent of pass-through across industries and countries.