Do analysts overreact to extreme good news in earnings?

We provide an alternative explanation for the previous finding of analysts’ overreaction to extreme good news in earnings. We show that such finding could be a result of analysts’ rational behavior in the face of high earnings uncertainty rather than their cognitive bias. Extreme earnings performance tends to be associated with higher earnings uncertainty that generally leads to more forecast optimism. Once this effect is accounted for, the univariate result of analysts’ overreaction to extreme good news in earnings is subsumed, leaving only their underreaction in general.

Distribution of the shareholder base of Swiss cantonal banks

In this paper, the equity distribution of the free float of shareholders and shares is examined at six different Swiss cantonal banks. The percentage of shareholders and shares held in the home canton of a given cantonal bank is significantly higher than compared to the averages of the rest of the cantonal banks. When scaling this data to the population/legal entities in a given canton, in all cases (excluding outlier data from the smallest of Swiss cantons), the shareholder and share ratio is much higher for the home canton than the rest of the cantons. We also see some evidence that the scaled shareholder and share ratio is higher at neighboring cantons compared to the rest of Swiss cantons; it is significantly so in two cases. Lastly, we also see some evidence that the scaled shareholder and share ratio is higher at cantons that speak the same language compared to cantons that speak a different language for a given cantonal bank; it is significantly so in about half the shareholder and one third of the share distribution data.

A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias

A proportional hazards model with competing risks is specified and is extended to correct for the possibility of originator bias. The model is used to examine the ability of option-theoretic models of mortgage pricing to forecast commercial mortgage defaults. Among the findings, those especially of interest include the influence of contemporaneous loan-to-value and debt-service-coverage ratios on commercial mortgage default probabilities. The paper also finds that option-theoretic models of mortgage pricing are quite capable of producing default estimates that fit the actual default rates well, especially when the model is corrected for originator bias.     

Bias and Sensitivity of Multipliers

Multipliers measure the derivatives of endogenous variables with respect to exogenous shocks and are functions of the structural parameters of an economic model. Substitution of the structural parameter estimates yields a so-called derived estimate for a multiplier or any reduced-form parameter. Derived estimates are biased. This paper presents first-order approximations to the biases and sensitivities of multipliers. The good performance of a flawed formula in input–output analysis is illuminated.     

Stein’s method and zero bias transformation for CDO tranche pricing

We propose an original approximation method, which is based on Stein’s method and the zero bias transformation, to calculate CDO tranches in a general factor framework. We establish first-order correction terms for the Gaussian and the Poisson approximations respectively and we estimate the approximation errors. The application to the CDO pricing consists of combining the two approximations. This work is partially supported by Fondation de risque.     

Mobile Communication and Local Information Flow: Evidence from Distracted Driving Laws

We examine the influence of mobile communication on local information flow and local investor activity using the enforcement of statewide distracted driving restrictions, which are exogenous events that constrain mobile communication while driving. By restricting mobile communication across a potentially sizable set of local individuals, these restrictions could inhibit local information flow and, in turn, the market activity of stocks headquartered in enforcement states. We first document a decline in Google search activity for local stocks when restrictions take effect, suggesting that constraints on mobile communication significantly affect individuals’ information search activity. We further find significant declines in local trading volume when restrictions are enforced. This drop in liquidity is (1) attenuated when laws provide substitutive means of mobile communication and (2) magnified when locals have long car commutes and when their daily commutes overlap with regular exchange hours. Moreover, trading volume suffers the most for local stocks with lower institutional ownership, less analyst coverage, and more intangible information. Additional analyses show lower intraday volume during local commute times when mobile connectivity is constrained. Together, our results suggest that local information and local investors matter in stock markets and that mobile communication is an important mechanism through which these elements operate to affect liquidity and price discovery.     

Analysts’ and Investors’ Reactions to Consistent Earnings Signals

We investigate (1) whether the trajectory of the current‐quarter earnings expectation path (defined by the signs of the forecast revision and the earnings surprise) provides information about future firm performance, and (2) the extent to which analysts and investors react to that information. Our results indicate that analysts underreact more to earnings information revealed by consistent‐signal earnings expectation paths than to earnings information communicated by inconsistent‐signal expectation paths. We also find that the current earnings expectation path provides incremental explanatory power for future abnormal returns, even after controlling for the sign and magnitude of the earnings surprise. Overall, our evidence is consistent with underreaction stemming from analysts’ and investors’ bias in processing the information in consistent‐signal earnings expectation paths.     

项目后评价中的常见偏差及其标准化应对措施

偏差广泛存在于各种统计行为中,在项目后评价中也不例外。不规范的项目后评价流程可能导致项目后评价的结果与实际状况有着极大的偏差。只有通过应用适当的统计学工具,才能有效地消除项目后评价的统计行为中出现的偏差。这种现象在项目后评价的标准化过程中应当受到重视,并采取针对性的标准化措施。     

Myopic governments and welfare-enhancing debt limits

This paper studies welfare effects of a soft borrowing constraint on sovereign debt. The constraint is modeled as a proportional fine per unit of debt in excess of a specified reference value, resembling features of the Stability and Growth Pact. Sovereign debt is the result of myopic fiscal policy. It reduces welfare in the absence of lump-sum taxes. The paper shows that the borrowing constraint enhances welfare by reducing long run debt. In an economy calibrated to a generic OECD country, the maximum attainable welfare gain of debt consolidation, which is induced by imposing the optimally parameterized constraint, amounts to 0.5% in terms of consumption. The short run welfare costs of the constraint, which arise from restricting the use of debt to smooth taxes, are quantitatively negligible.     

The gain from commitment in a two-country economy with inflation persistence

In recent years, the worldwide inflation rate appears to be converging to a low stable level. Moreover, the Phillips curve is flattening in many countries. These facts indicate that the output gap fluctuations associated with inflation persistence in one country influence other countries and suggest that the central bank consider the effect of inflation persistence on the real economy in an open economy framework. The objective of this paper is to explore optimal monetary policy in a two-country economy with inflation persistence. To consider the case in which inflation persistence is present in both countries, we assume that a fraction of firms that change their prices follows the rule-of-thumb pricing rule. In this case, the new Keynesian Phillips curve (NKPC) in each country becomes flatter as the fraction of firms employing the rule-of-thumb pricing rule increases in both countries. Our results show gains from commitment in a two-country economy with inflation persistence. This paper addresses that the presence of a severe deflationary bias is the main source of the large gain from a commitment policy in a two-country economy with inflation persistence.