Feedback and the success of irrational investors

We provide a model in which irrational investors trade based upon considerations that have no inherent connection to fundamentals. However, trading activity affects market prices, and because of feedback from security prices to cash flows, the irrational trades influence underlying cash flows. As a result, irrational investors can, in some situations, earn abnormal (i.e., risk-adjusted) profits that can exceed the abnormal profits of rational informed investors. Although the trading of irrational investors cause prices to deviate from fundamental values, stock prices follow a random walk.     

The Nature of Corruption Deterrence in a Competitive Media Sector

This paper compares the deterrence provided by a competitive media sector towards government induced corruption with that of a media monopoly in a setting where the media might raise both true as well as false allegations of corruption. It finds that competition’s impact on corruption deterrence is not necessarily better than a monopoly but rather hinges on a delicate balance between government’s kickback from corruption and the media’s potential benefit from exposure. While the paper does identify conditions in which a competitive media sector would improve upon the deterrence provided by a monopoly, it also find conditions under which it would do no better than a monopoly and in some situations its strategic response could be even worse especially when it intensifies effort towards justifying false allegations.     

3G背景下电信竞争模型与接入规制政策研究

3G正在重组我国的电信产业组织,同时对电信运营商商业竞争模式的变革提出要求。本文构建3G背景下电信竞争模型,分析垄断运营商的网络规模决策及网络竞争的福利效应,并对电信接入定价决策及接入规制政策进行分析。本文的主要结论是:垄断运营商缺乏提供普遍服务的激励;在网络规模非对等下,引入电信竞争通常是社会低效率的;在位者提供瓶颈资源的接入定价是社会低效率的,可以采用基于机会成本的有效元素定价对接入服务予以规制。     

Underpricing,Share Overhang,and Insider Selling in Follow‐on Offerings

Prospect and information‐momentum theories predict that insiders can offer fewer shares in an initial public offering (IPO) to create informational momentum and obtain higher prices in follow‐on offerings. I find that dilution and insider participation in the IPO are negatively related to the number and size of follow‐on offerings, consistent with the prediction. However, insider selling in follow‐on offerings is positively related to IPO selling, contrary to the theories. Returns around follow‐on offering announcements are more negative for newly public firms than older firms, but for newly public firms do not differ by whether the announcement comes before or after the lockup expiration date.     

Child labor and agricultural shocks

This paper examines the relationship between household income shocks and child labor. In particular, we investigate the extent to which transitory income shocks lead to increases in child labor and whether household asset holdings mitigate the effects of these shocks. Using data from a household panel survey in Tanzania, we find that both relationships are significant. We investigate mechanisms that could account for these results, including buffer stocks and borrowing.     

A theory of socialistic internal capital markets

We develop a model of a two-division firm in which the “strong” division has, on average, higher quality investment opportunities than the “weak” division. We show that, in the presence of agency and information problems, optimal effort incentives are less powerful and thus managerial effort is lower in the strong division. This leads the firm to bias its project selection policy against the strong division. The selection bias is more severe when there is a larger spread in the average quality of investment opportunities between the two divisions.     

Competitive risk sharing contracts with one-sided commitment

This paper analyzes dynamic equilibrium risk sharing contracts between profit-maximizing intermediaries and a large pool of ex ante identical agents that face idiosyncratic income uncertainty that makes them heterogeneous ex post. In any given period, after having observed her income, the agent can walk away from the contract, while the intermediary cannot, i.e. there is one-sided commitment. We consider the extreme scenario that the agents face no costs to walking away, and can sign up with any competing intermediary without any reputational losses. We demonstrate that not only autarky, but also partial and full insurance can obtain, depending on the relative patience of agents and financial intermediaries. Insurance can be provided because in an equilibrium contract an up-front payment effectively locks in the agent with an intermediary. We then show that our contract economy is equivalent to a consumption-savings economy with one-period Arrow securities and a short-sale constraint, similar to Bulow and Rogoff [1989. Sovereign debt: is to forgive to forget? American Economic Review 79, 43-50]. From this equivalence and our characterization of dynamic contracts it immediately follows that without cost of switching financial intermediaries debt contracts are not sustainable, even though a risk allocation superior to autarky can be achieved.     

Revisiting the interest rate–exchange rate nexus: a Markov-switching approach

In this paper the interest rate–exchange rate nexus and the effectiveness of an interest rate defense are investigated empirically. I present a reduced form evidence which characterizes the empirical relationship between interest rates and exchange rates. I use a Markov-switching specification of the nominal exchange rate with time-varying transition probabilities. Empirical evidence from six developing countries: Indonesia, South Korea, the Philippines, Thailand, Mexico, and Turkey indicates that raising nominal interest rates leads to a higher probability of switching to a crisis regime. Thus, the empirical results presented here may support the view that a high interest rate policy is unable to defend the exchange rate. Unlike other studies which consider linear models only, my findings are robust and consistent over different countries and crisis episodes (Asian 1997 crises, Mexico 1994 crisis, and Turkey 1994, 2001 crises). In order to explain the empirical findings, I construct a simple theoretical model by incorporating an interest rate rule in the model proposed by Jeanne and Rose (2002) [Jeanne, O., Rose, A.K., 2002. Noise trading and exchange rate regimes, Quarterly Journal of Economics. 117 (2) 537–569]. The model has multiple equilibria, and under plausible conditions, higher exchange rate volatility is associated with higher interest rates.     

Estimating the Term Structure of Credit Spreads on Euro-denominated Corporate Bonds

In this paper, we estimate the term structure of credit spreads on Euro-denominated corporate bonds with a modified version of the Duffee (1999) intensity-based model. The empirical analysis considers monthly observations for a sample of investment-grade euro-denominated corporate bonds analysed for rating classes. The model is estimated with a maximum likelihood – Kalman filter approach over different sample periods ranging from January 1999 to August 2006. The estimation results, in general, support the application of the theoretical model to the euro-denominated bond market and exhibit some interesting characteristics of this relatively recent market.