The linear growth credibility model

Abstract

The investigation of evolutionary models, i.e. models allowing the risk parameter to change in time, has been one of the main topics of research in credibility theory in the last few years. In the present paper a very special (but rather practicable) evolutionary model is defined and recursions for the credibility estimator are stated.     

Estimating the price elasticity of demand in the London stock market

The hypothesis that demand curves for individual stocks slope downwards is typically investigated by empirical analysis of stock price movements following events that cause shifts in demand or supply. However, it is difficult to attribute observed price movements between downward sloping demand curves and information conveyed by the event. In this paper an econometric approach, based on market-maker response to unexpected changes in inventory, is used to separate out the slope of the demand curve from information effects and estimate the slopes of the demand curves for twenty stocks included in the Financial Times-Stock Exchange 100 Share Index (FTSE100). The analysis suggests that downward sloping demand curves would decrease the price by about 7.5% for a 1% increase in the number of outstanding shares.     

Relationship Incentives and the Optimistic/Pessimistic Pattern in Analysts' Forecasts

We examine whether analysts' incentives to maintain good relationships with management contribute to the optimistic/pessimistic within‐period time trend in analysts' forecasts. In our experiments, 81 experienced sell‐side analysts from two brokerage firms predict earnings based on historical information and management guidance. Analysts' forecasts exhibit an optimistic/pessimistic pattern across the two timing conditions (early and late in the quarter), and the effect is significantly stronger when the analysts have a good relationship with management than when their only incentive is to be accurate. Debriefing results indicate that analysts are aware of this pattern of forecasts, and believe that this benefits their future relationships with management and with brokerage clients. The analysts most frequently cite favored conference call participation and information access when describing benefits from maintaining good relationships with management. Our results suggest the following: The optimistic/pessimistic pattern in forecasts is in part a conscious response to relationship incentives, information access is perceived to be a major benefit of management relationships, and recent regulatory changes may have lessened but have not eliminated this conflict of interest source.     

Helping behavior in a virtual crisis situation: effects of safety awareness and crisis communication

Incident evaluations show that bystanders tend to help: they do not wait for professionals to arrive, but act as required by the situation at hand. In the present study, we investigated how safety awareness (induced before an accident happened) and providing a course of action by emergency services affect helping behavior after witnessing a virtual accident with two victims. The main task of the participants was to arrive at a job interview in time. Safety awareness was manipulated by the specific organization they went to: either promoting safe traffic or healthy living. The results show that all participants were inclined to help. Participants who were primed towards safe traffic more often called the emergency number, but talked to the victim less often. Participants who had received specific courses of action moved the victim less often. In all, the results clearly indicate the value of effective risk communication (before an event occurs) and crisis communication (after an event has occurred), as both types of information improve the quality of actual helping behavior at the scene.     

Measuring competition in spatial retail

We propose and estimate a spatially aggregated discrete-choice model with overlapping consumer choice sets and demographic-driven heterogeneity that varies by chain. Our approach avoids the need to define markets ex ante and captures rich substitution patterns, even in the absence of price data. An application to the US grocery industry illustrates the importance of location, format, and the spatial distribution of consumers in shaping the competitive environment. Contrary to conventional wisdom, we find substantial cross-format competition between supercenters, clubs, and traditional grocers. Finally, we evaluate two representative mergers between supermarket chains to demonstrate how our estimates inform antitrust policy.     

Oil shocks and volatility jumps

Review of Quantitative Finance and Accounting - In this paper, we analyse the role of oil price shocks, derived from expectations of consumers, economists, financial market, and policymakers, in...     

The real effects of delisting: Evidence from a regression discontinuity design

We study how the delisting of a firm’s stock, and the accompanying drop in liquidity, causally affects a firm’s real economic decisions. Although delisting is endogenous, we identify a causal effect by using regression discontinuity design (RDD). This technique suits the delisting problem because the probability of delisting rises discontinuously when observable variables pass known thresholds. We find that delisting results in a modest decline in investment and cash saving and an important and robust decline in employment.     

Asymmetries in Price‐Setting Behavior: New Microeconometric Evidence from Switzerland

In this paper, we follow the recent empirical literature that has specified reduced‐form models for price setting that are closely tied to (S, s) ‐pricing rules. Our contribution to the literature is twofold. First, we propose an estimator that relaxes distributional assumptions on the unobserved heterogeneity. Second, we use the estimator to examine the prevalence of positive price changes in a low‐inflation environment. Our model estimates suggest that, if inflation falls from 0.9% to zero, the share of positive price changes in all price changes falls from 63.6% to 56.2%.