Framing Effects in Stock Market Forecasts: The Difference Between Asking for Prices and Asking for Returns

Studies analyzing return expectations of financial market participantslike fund managers, CFOs or individual investors are highlyinfluential in academia and practice. We argue and show thatthe results in these surveys above are easily influenced bythe elicitation mode of return expectations. Surveys that askfor future stock price levels are more likely to produce meanreverting expectations than surveys that directly ask for futurereturns. Furthermore, we conduct a questionnaire study thatexplicitly analyzes whether the specific elicitation mode affectsreturn expectations in the above direction. In our study, subjectswere asked to state mean forecasts for seven time series. Usinga between subject design, one half of the subjects was askedto state future price levels, the other group was directly askedfor returns. We observe a highly significant framing effect.For upward sloping time series, the return forecasts statedby investors in the return forecast mode are significantly higherthan those derived for investors in the price forecast mode.For downward sloping time series, the return forecasts givenby investors in the return forecast mode are significantly lowerthan those derived for investors in the price forecast mode.We argue that this finding is consistent with behavioral theoriesof investor expectation formation based on the representativenessheuristic.     

Measuring the Impact of a Business Ethics Course and Community Service Experience on Students’ Values and Opinions

Until now, there has been little research assessingthe impact and extent of business ethics education andservice learning upon students values and opinions. This paper studies the influence of these variables byanalyzing 129 junior-level students ethical valuesand opinions before and after these experiences. Through the use of the Students Values and OpinionsSurvey (SVOS) as a measurement gauge, we foundsignificant support for our hypotheses that a businessethics course and a community service experiencepositively affect students values and opinions. Thus, we found desirable improvement in the ethicalvalues and opinions of students after they wereexposed to service learning and business ethicseducation. In addition, we explored the impact ofservice learning by gender and prior communityservice. We did not find a significant difference inthe effect of service learning for men or women, butdid find that prior community service increased thepositive impact for students completing theircommunity service requirement in this study.     

“Imaginary” or “Real” Moneys of Account in Medieval Europe? An Econometric Analysis of the Basle Pound, 1365–1429

During the Middle Ages, the medium of exchange function of money was separate from the unit of account function. This has given rise to the misconception that the medieval pound was an “abstract” or “imaginary” unit of account whose purchasing power was independent of that of gold and silver coins. The joint behavior of the pound price of gold, the pound price of silver, and the silver–gold ratio in Basle between 1365 and 1429 cannot be reconciled with the notion that nominal values were autonomous. Instead, the monetary system was based on a silver standard, supplemented by gold coins whose money of account values were determined by this silver standard.     

Pure Strategy Nash Equilibrium in a Group Formation Game with Positive Externalities

This paper identifies a domain of payoff functions inno spillovernoncooperative games withPositive externalitywhich admit a pure strategy Nash equilibrium. Since in general a Nash equilibrium may fail to exist, in order to guarantee the existence of an equilibrium, we impose two additional assumptions,AnonymityandOrder preservation. The proof of our main result is carried out by constructing, for a given gameG, a potential function Ψ over the set of strategy profiles in such a way that the maximum of Ψ yields a Nash equilibrium in pure strategies ofG.Journal of Economics LiteratureClassification Numbers: C72, D62, H73.     

Stability of jurisdiction structures under the equal share and median rules

We consider a finite society with of individuals distributed along the real line. The individuals form jurisdictions to consume public projects, equally share their costs and, in addition, bear a transportation cost to the location of the project. We examine a core and Nash notions of stable jurisdiction structures and show that in hedonic games both solution sets could be empty. We demonstrate that in a quasi-hedonic set-up there is a Nash stable partition, but, in general, there are no core stable partitions. We then examine a subclass of societies that admits the existence of both types of stable partitions. Financial support through grants R98-0631 from the Economic Education and Research Consortium, # NSh-1939.2003.6 School Support, Russian Foundation for Basic Research No. 04-02-17227, and the Russian Science Support Foundation is gratefully acknowledged.     

A model of banknote discounts

Prior to 1863, state-chartered banks in the United States issued notes—dollar-denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at a discount outside the local area. These discounts varied by both the location of the bank and the location where the discount was being quoted. Further, these discounts were asymmetric across locations, meaning that the discounts quoted in location A on the notes of banks in location B generally differed from the discounts quoted in location B on the notes of banks in location A. Also, discounts generally increased when banks suspended payments on their notes. In this paper we construct a random matching model to qualitatively match these facts about banknote discounts. To attempt to account for locational differences, the model has agents that come from two distinct locations. Each location also has bankers that can issue notes. Banknotes are accepted in exchange because banks are required to produce when a banknote is presented for redemption and their past actions are public information. Overall, the model delivers predictions consistent with the behavior of discounts.