Foreclosure contagion and the neighborhood spillover effects of mortgage defaults
| Authors | Gupta |
| Journal | Journal of Finance |
| Year | 2019 |
| Type | Published Paper |
| Abstract | In this paper, I identify shocks to interest rates resulting from two administrative details in adjustable-rate mortgage contract terms: the choice of financial index and the choice of lookback period. I find that a 1 percentage point increase in interest rate at the time of adjustable-rate mortgage (ARM) reset results in a 2.5 percentage increase in the probability of foreclosure in the following year, and that each foreclosure filing leads to an additional 0.3 to 0.6 completed foreclosures within a 0.10-mile radius. In explaining this result, I emphasize price effects, bank-supply responses, and borrower responses arising from peer effects. |
| URL | https://doi.org/10.1111/jofi.12821 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
Information sharing and spillovers: Evidence from financial analysts
| Authors | Hwang, Liberti, Sturgess |
| Journal | Management Science |
| Year | 2019 |
| Type | Published Paper |
| Abstract | We study how information sharing within an organization affects individual performance. We look at situations in which the same analyst, while working at the same broker, covers multiple mergers and acquisitions (M&As), in particular the acquirer prior to the M&A and the merged firm thereafter. We find that earnings forecasts for the merged firm are significantly more accurate when the analyst has a colleague (working at the same broker) covering the target prior to the M&A. This holds particularly true if acquirer analysts and target analysts reside in the same locale, if they are part of a smaller team, and if the target analyst is of higher quality. Our findings highlight the importance of information spillovers on individual performance in knowledge-based industries. |
| URL | https://pubsonline.informs.org/doi/10.1287/mnsc.2017.2986 |
| Tags | Archival Empirical | Productivity Spillovers |
Corporate culture as an implicit contract
| Authors | Jeffers, Lee |
| Year | 2019 |
| Type | Working Paper |
| Abstract | We develop a measure of corporate culture using coworker connectivity on LinkedIn's platform, and show it is strongly correlated with positive employee relations and satisfaction. Using state-level changes to employment agreements as shocks to explicit contracts, we find that these changes significantly impact employees in weakly connected firms, but have little to no effect on those at strongly connected firms. Our results suggest that firms with strong corporate culture are less dependent on explicit contracts to retain human capital. We document implications for firms' investment decisions and other outcomes. |
| Keywords | Corporate culture, human capital, implicit contracts, non-competes |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3426060 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior | Media and Textual Analysis | Social Network Structure |
The relevance of broker networks for information diffusion in the stock market
| Authors | Maggio, Franzoni, Kermani, Sommavilla |
| Journal | Journal of Financial Economics |
| Year | 2019 |
| Type | Published Paper |
| Abstract | This paper shows that the network of relationships between brokers and institutional investors shapes information diffusion in the stock market. Central brokers gather information by executing informed trades, which is then leaked to their best clients. After large informed trades, other institutional investors are significantly more likely to execute similar trades through the same broker, allowing them to capture returns that are twice as large as their normal trading performance. Also indicative of information leakage, the clients of the broker employed by activist investors to execute their trades buy the same stocks just before the filing of the 13D. |
| Keywords | Brokers, institutional investors, social networks, informed trading, market efficiency |
| URL | https://doi.org/10.1016/j.jfineco.2019.04.002 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Social Network Structure |
Learning from coworkers: Peer effects on individual investment decisions
| Authors | Ouimet, Tate |
| Journal | Review of Financial Studies |
| Year | 2019 |
| Type | Published Paper |
| Abstract | Using unique data on employee stock purchase plans (ESPPs), we examine the influence of networks on investment decisions. Comparing employees within a firm during the same election window with metro area fixed effects, we find that the choices of coworkers in the firm's ESPP exert a significant influence on employees' own decisions to participate and trade. Moreover, we find that the presence of high-information employees magnifies the effects of peer networks. Given participation in an ESPP is value-maximizing, our analysis suggests the potential of networks and targeted investor education to improve financial decision-making. |
| URL | https://doi.org/10.1111/jofi.12830 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
How do investment ideas spread through social interaction? Evidence from a Ponzi scheme
| Authors | Rantala |
| Journal | Journal of Finance |
| Year | 2019 |
| Type | Published Paper |
| Abstract | A unique data set from a large Ponzi scheme allows me to study word-of-mouth diffusion of investment information. Investors could join the scheme only by invitation from an existing member, which allows me to observe how the idea spreads from one person to the next based on inviter-invitee relationships. I find that the observed social network has a scale-free connectivity structure, which significantly facilitates the diffusion of the investment idea and contributes to the growth and survival of the socially spreading Ponzi scheme. I further find that investors invest more if their inviter has comparatively higher age, education, and income. |
| URL | https://doi.org/10.1111/jofi.12822 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure |
Narrative economics: how stories go viral and drive major economic events
| Authors | Shiller |
| Book | Narrative Economics |
| Year | 2019 |
| Type | Book |
| Abstract | Stories people tell-about financial confidence or panic, housing booms, or Bitcoin-can go viral and powerfully affect economies, but such narratives have traditionally been ignored in economics and finance because they seem anecdotal and unscientific. In this groundbreaking book, Robert Shiller explains why we ignore these stories at our peril-and how we can begin to take them seriously. Using a rich array of examples and data, Shiller argues that studying popular stories that influence individual and collective economic behavior-what he calls "narrative economics"-may vastly improve our ability to predict, prepare for, and lessen the damage of financial crises and other major economic events. The result is nothing less than a new way to think about the economy, economic change, and economics. In a new preface, Shiller reflects on some of the challenges facing narrative economics, discusses the connection between disease epidemics and economic epidemics, and suggests why epidemiology may hold lessons for fighting economic contagions. |
| Keywords | COVID-19, coronavirus, H1N1, Wuhan, Spanish flu, Spanish influenza, influenza, Ebola polio disease, 1918 flu epidemic, Great Recession, 1929 financial epidemic, pandemic, co-epidemic, contagion, market meltdown, stock crash, bubble, panic, epidemiology, world financial crisis, virality, disease, stimulus, fear, bank runs, bank failures, behavioral economics, consumer confidence, crowd psychology, crisis of confidence, crisis, mutation, conspiracy theories, fake news, false narratives, chaos theory, butterfly effect, John Maynard Keynes |
| URL | https://doi.org/10.1515/9780691212074 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Evolutionary Finance | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Transmission Biases |
Intergenerational mobility and preferences for redistribution
| Authors | Alesina, Stantcheva, Teso |
| Journal | American Economic Review |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Using new cross-country survey and experimental data, we investigate how beliefs about intergenerational mobility affect preferences for redistribution in France, Italy, Sweden, the United Kingdom, and the United States. Americans are more optimistic than Europeans about social mobility. Our randomized treatment shows pessimistic information about mobility and increases support for redistribution, mostly for "equality of opportunity" policies. We find strong political polarization. Left-wing respondents are more pessimistic about mobility: their preferences for redistribution are correlated with their mobility perceptions; and they support more redistribution after seeing pessimistic information. None of this is true for right-wing respondents, possibly because they see the government as a "problem" and not as the "solution". |
| Keywords | Social mobility, opportunity fairness, political process, heterogeneity in perceptions |
| URL | https://www.aeaweb.org/articles?id=10.1257/aer.20162015 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical |
The economic effects of social networks: Evidence from the housing market
| Authors | Bailey, Cao, Kuchler, Stroebel |
| Journal | Journal of Political Economy |
| Year | 2018 |
| Type | Published Paper |
| Abstract | We show how data from online social networking services can help researchers better understand the effects of social interactions on economic decision making. We combine anonymized data from Facebook, the largest online social network, with housing transaction data and explore both the structure and the effects of social networks. Individuals whose geographically distant friends experienced larger recent house price increases are more likely to transition from renting to owning. They also buy larger houses and pay more for a given house. Survey data show that these relationships are driven by the effects of social interactions on individuals' housing market expectations. |
| URL | https://www.journals.uchicago.edu/doi/abs/10.1086/700073 |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Financing- and Investment Decisions (Individual) |
Can Twitter help predict firm-level earnings and stock returns?
| Authors | Bartov, Faurel, Mohanram |
| Journal | The Accounting Review |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Prior research has examined how companies exploit Twitter in communicating with investors, and whether Twitter activity predicts the stock market as a whole. We test whether opinions of individuals tweeted just prior to a firm's earnings announcement predict its earnings and announcement returns. Using a broad sample from 2009 to 2012, we find that the aggregate opinion in individual tweets successfully predicts a firm's forthcoming quarterly earnings and announcement returns. These results hold for tweets that convey original information, as well as tweets that disseminate existing information, and are stronger for tweets providing information directly related to firm fundamentals and stock trading. Importantly, our results hold even after controlling for concurrent information or opinion from traditional media sources, and are stronger for firms in weaker information environments. Our findings highlight the importance of considering the aggregate opinion in individual tweets when assessing stocks' future prospects and value. |
| Keywords | Twitter, social media, wisdom of crowds, earnings, analyst earnings forecast, abnormal stock returns |
| URL | https://publications.aaahq.org/accounting-review/article-abstract/93/3/25/4062/Can-Twitter-Help-Predict-Firm-Level-Earnings-and?redirectedFrom=fulltext |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |
What motivates buy-side analysts to share recommendations online?
| Authors | Crawford, Gray, Johnson, Price |
| Journal | Management Science |
| Year | 2018 |
| Type | Published Paper |
| Abstract | We examine why buy-side analysts share investment ideas on SumZero.com, a private social networking website designed to facilitate interaction and information sharing among buy-side professionals. We first document that our sample of more than 1,000 buy-side analysts issue recommendations that have investment value. In particular, recommendations generate significant returns when they are posted to the website and the returns to both buy and sell recommendations drift in the direction of the recommendation. These returns are the most dramatic for contrarian recommendations (i.e., those issued contrary to the sell-side consensus). We explore labor-market motivations for sharing information and document that analysts who have strong incentives to seek new jobs (those at small funds), are significantly more likely to issue recommendations. We also show that analysts who share investment ideas are more likely to change jobs, and that the ratings their recommendations receive are positively related to changing employment. Overall, we show that social networking is an effective reputation building and job seeking tool for buy-side analysts. |
| Keywords | Security analysts, stock recommendations, hedge funds |
| URL | https://doi.org/10.1287/mnsc.2017.2749 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Social Network Structure |
The promises and pitfalls of robo-advising
| Authors | D'Acunto, Prabhala, Rossi |
| Journal | Review of Financial Studies |
| Year | 2018 |
| Type | Published Paper |
| Abstract | We study the introduction of a wealth-management robo-adviser that constructs portfolios tailored to investors' holdings and preferences. Adopters are similar to non-adopters in terms of demographics and prior interactions with human advisers but tend to be more active and have greater assets under management. Investors adopting robo-advising experience diversification benefits. Ex ante undiversified investors increase stock holdings and hold portfolios with less volatility and better returns. Already well-diversified investors hold fewer stocks, yet see some reduction in volatility, and trade more after adoption. All investors increase attention based on online account logins. We find that adopters exhibit declines in prominent behavioral biases, including the disposition, trend chasing, and rank effect. Our results emphasize the promises and pitfalls of robo-advising tools, which are becoming ubiquitous all over the world. |
| Keywords | Investment decisions, technological innovation, portfolio management, behavioral biases |
| URL | https://academic.oup.com/rfs/article/32/5/1983/5427774?login=true |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) |
Historical antisemitism, ethnic specialization, and financial development
| Authors | D'Acunto, Prokopczuk, Weber |
| Journal | Review of Economic Studies |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Historically, European Jews have specialized in financial services while being the victims of antisemitism. We find that the present-day demand for finance is lower in German counties where historical antisemitism was higher, compared to otherwise similar counties. Households in counties with high historical antisemitism have similar saving rates but invest less in stocks, hold lower saving deposits, and are less likely to get a mortgage to finance homeownership after controlling for wealth and a rich set of current and historical covariates. Present-day antisemitism and supply-side forces do not fully explain the results. Households in counties where historical antisemitism was higher distrust the financial sector more-a potential cultural externality of historical antisemitism that reduces wealth accumulation in the long run. |
| Keywords | Cultural economics, cultural finance, intergenerational transmission of norms, stereotypes, household finance, history & finance. |
| URL | https://doi.org/10.1093/restud/rdy021 |
| Tags | Archival Empirical | Evolutionary Finance | Financing- and Investment Decisions (Individual) |
Is fraud contagious? Coworker influence on misconduct by financial advisors
| Authors | Dimmock, Gerken, Graham |
| Journal | Journal of Finance |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Using a novel data set of U.S. financial advisors that includes individuals' employment histories and misconduct records, we show that coworkers influence an individual's propensity to commit financial misconduct. We identify coworkers' effect on misconduct using changes in coworkers caused by mergers of financial advisory firms. The tests include merger-firm fixed effects to exploit the variation in changes to coworkers across branches of the same firm. The probability of an advisor committing misconduct increases if his new coworkers, encountered in the merger, have a history of misconduct. This effect is stronger between demographically similar coworkers. |
| URL | https://doi.org/10.1111/jofi.12613 |
| Tags | Archival Empirical | Propagation of Noise / Undesirable Outcomes |
Headline salience, managerial opportunism, and over-and underreactions to earnings
| Authors | Huang, Nekrasov, Teoh |
| Journal | The Accounting Review |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Limited attention theory predicts that higher salience of earnings news implies a stronger immediate market reaction to earnings news and a weaker post-earnings announcement drift (PEAD) or reversal (PEAR). Using a new measure, SALIENCE, defined as the number of quantitative items in an earnings press release headline, we find strong evidence consistent with salience effects. Higher SALIENCE is associated with stronger announcement reaction and subsequent PEAR. Managers are more likely to choose higher SALIENCE before selling shares in the post-announcement period and when earnings are high, but less persistent, and to choose lower SALIENCE before stock option grants. The results are robust to using residual salience and an extended set of control variables. The findings are consistent with managers opportunistically headlining positive financial information in the earnings press release to incite over-optimism in investors with limited attention. |
| URL | https://doi.org/10.2308/accr-52010 |
| Tags | Archival Empirical | Manager / Firm Behavior | Media and Textual Analysis |
Peer financial distress and individual leverage: Evidence from 30 million individuals
| Authors | Kalda |
| Year | 2018 |
| Type | Working Paper |
| Abstract | Using health shocks to identify financial distress situations, I document that peer distress leads to a decline in individual leverage and debt on average. This decline occurs as individuals borrow less on the intensive margin, pay higher fractions of their debt and save more following peer distress. The estimates suggest that these peer effects can explain a decline of up to $213.31 billion in household debt between 2011 and 2015, corresponding to 1.82% of total household debt in 2011. The heterogeneity in responses highlight the role of changes in beliefs and preferences as the underlying mechanism. |
| URL | https://www.stern.nyu.edu/sites/default/files/assets/documents/Kalda_03312018.pdf |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
What happens in vegas stays on TripAdvisor? A theory and technique to understand narrativity in consumer reviews
| Authors | Laer, Escalas, Ludwig, Hende |
| Journal | Journal of Consumer Research |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Many consumers base their purchase decisions on online consumer reviews. An overlooked feature of these texts is their narrativity: the extent to which they tell a story. The authors construct a new theory of narrativity to link the narrative content and discourse of consumer reviews to consumer behavior. They also develop from scratch a computerized technique that reliably determines the degree of narrativity of 190,461 verbatim, online consumer reviews and validate the automated text analysis with two controlled experiments. More transporting (i.e., engaging) and persuasive reviews have better-developed characters and events as well as more emotionally changing genres and dramatic event orders. This interdisciplinary, multimethod research should help future researchers (1) predict how narrativity affects consumers' narrative transportation and persuasion, (2) measure the narrativity of large digital corpora of textual data, and (3) understand how this important linguistic feature varies along a continuum. |
| Keywords | Automated text analysis, computational linguistics, consumer reviews, narrative persuasion, narrative transportation, storytelling |
| URL | https://doi.org/10.1093/jcr/ucy067 |
| Tags | Archival Empirical | Consumer Decisions | Media and Textual Analysis | Theory |
Teachers teaching teachers: The role of workplace peer effects in financial decisions
| Authors | Maturana, Nickerson |
| Journal | Review of Financial Studies |
| Year | 2018 |
| Type | Published Paper |
| Abstract | This paper studies the role of workplace peers in the transmission of information pertinent to an important household financial decision: the mortgage refinancing choice. Exploiting commonalities in teaching schedules of school teachers in Texas to identify peer groups, we find that refinancing activity among teachers' peers increases their likelihood of refinancing by 20.7%. The effect of peers increases with the potential savings realized upon refinancing and is stronger among younger teachers. Peers also affect teachers' choice of lender. Overall, our findings suggest that peer interactions greatly reduce a household's cost of acquiring and processing financial information. |
| URL | https://doi.org/10.1093/rfs/hhy136 |
| Tags | Archival Empirical | Financing- and Investment Decisions (Individual) |
Partisan bias, economic expectations, and household spending
| Authors | Mian, Sufi, Khoshkhou |
| Year | 2018 |
| Type | Working Paper |
| Abstract | The well-documented rise in political polarization among the U.S. electorate over the past 20 years has been accompanied by a substantial increase in the effect of partisan bias on survey-based measures of economic expectations. Individuals have a more optimistic view on future economic conditions when they are more closely affiliated with the party that controls the White House, and this tendency has increased significantly over time. Individuals report a large shift in economic expectations based on partisan affiliation after the 2008 and 2016 elections, but administrative data on spending shows no effect of these shifts on actual household spending. |
| Keywords | Consumer confidence, government, economic, policy, sentiment, news, noise, spending, consumption, elections, voting, polarization, Trump, elections |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2620828 |
| Tags | Archival Empirical | Consumer Decisions | Experimental / Survey-Based Empirical |
The geography of financial misconduct
| Authors | Parsons, Sulaeman, Titman |
| Journal | Journal of Finance |
| Year | 2018 |
| Type | Published Paper |
| Abstract | Financial misconduct (FM) rates differ widely between major U.S. cities, up to a factor of 3. Although spatial differences in enforcement and firm characteristics do not account for these patterns, city-level norms appear to be very important. For example, FM rates are strongly related to other unethical behavior, involving politicians, doctors, and (potentially unfaithful) spouses, in the city. |
| Keywords | Corporate corruption, financial misconduct, peer effects, political fraud, white collar misconduct |
| URL | https://doi.org/10.1111/jofi.12704 |
| Tags | Archival Empirical | Manager / Firm Behavior | Theory |