Sunk cost accounting and entrapment in corporate acquisitions and financial markets : an experimental analysis

Sunk cost accounting refers to the empirical finding that individuals tend to let their decisions be influenced by costs made at an earlier time in such a way that they are more risk seeking than they would be had they not incurred these costs. Such behaviour violates the axioms of economic theory which states individuals should only consider incremental costs and benefits when executing investments. This dissertation is concerned whether the pervasive sunk cost phenomenon extends to corporate acquisitions and financial markets. 122 students from the University of St Andrews participated in three experiments exploring the use of sunk costs in interactive negotiation contexts and financial markets. Experiment I elucidates that subjects value the sunk cost issue higher than other issues in a multi-issue negotiation. Experiment II illustrates that bidders are influenced by the sunk costs of competing bidders in a first price, sealed-bid, common-value auction. In financial markets their exists an analogous concept to sunk cost accounting known as the disposition effect. This explains the tendency of investors to sell “winning” stocks and hold “losing” stocks. Experiment III demonstrates that trading strategies in an experimental equity market are influenced by a pre-trading brokerage cost. Not only are subjects influenced in the direction that reduces the disposition effect but also trading is diminished. Without the brokerage cost there was a significant disposition effect. JEL-Classifications C70, C90, D44, D80, D81, G1

Essays in international finance

This Ph.D. thesis contains 3 essays in international finance with a focus on foreign exchange market from the perspectives of empirical asset pricing (Chapter 2 and Chapter 3), forecasting and market microstructure (Chapter 4). In Chapter 2, I derive the position-unwinding likelihood indicator for currency carry trade portfolios in the option pricing model, and show that it represents the systematic crash risk associated with global liquidity imbalances and also is able to price the cross-section of global currency, sovereign bond, and equity portfolios; I also explore the currency option-implied sovereign default risk in Merton’s framework, and link the sovereign CDS-implied credit risk premia to currency excess returns that it prices the cross section of currency carry, momentum, and volatility risk premium portfolios. In Chapter 3, I investigate the factor structure in currency market and identify three important properties of global currencies – overvalued (undervalued) currencies with respect to equilibrium exchange rates tend to be crash sensitive (insensitive) measured by copula lower tail dependence, relatively cheap (expensive) to hedge in terms of volatility risk premium, and exposed to high (low) speculative propensity gauged by skew risk premium. I further reveal that these three characteristics have rich asset pricing and asset allocation implications, e.g. striking crash-neutral and diversification benefits for portfolio optimization and risk management purposes. In Chapter 4, I examine the term structure of exchange rate predictability by return decomposition, incorporate common latent factors across a range of investment horizons into the exchange rate dynamics with a broad set of predictors, and handle both parameter uncertainty and model uncertainty. I demonstrate the time-varying term-structural effect and model disagreement effect of exchange rate determinants and the projections of predictive information over the term structure, and utilize the time-variation in the probability weighting from dynamic model averaging to identify the scapegoat drivers of customer order flows. I further comprehensively evaluate both statistical and economic significance of the model allowing for a full spectrum of currency investment management, and find that the model generates substantial performance fees

Urban Air Rights as Market Devices: Exploring Financialization in Taipei Metropolitan Area

This thesis is the first geographical study which critically explores the role of urban air rights - the right to build upwards on and above a land tract – in processes of urban financialization. The thesis highlights the economic lives of air rights in the Taipei Metropolitan Area, Taiwan, showing how they are not only a market-based urban policy and planning tool but are also closely involved in economic processes of making markets, assets, and profits. Three types of urban air rights - Bonus Floor Area (BFA), Transferable Development Rights (TDR) and Incremental Floor Area (IFA) – that are prevalent in urban Taipei are explored in detail. The thesis examines the relations between the proliferation of air rights production and urban financialization through an experimental methodology of ‘following urban air rights’ through the socio-technical operations of their assembly and circulation. It argues that air rights are ‘market devices’ and, as such, they are constitutive of the contingent processes of commodification, marketization and capitalization that amount to urban financialization. Through case studies, the thesis shows how airspaces are commodified and, significantly, how they also become an asset class that is marketized and traded and/or capitalized upon and borrowed against (i.e. leveraged). Moreover, by exploring these processes, the thesis shows how air rights ‘overflow’ into popular urban politics: air rights become a site of struggle over rights to the financialized city. More broadly, the thesis contributes to theoretical debates on urban financialization by examining how the urban-finance nexus is teeming with socio-technical practices. By focusing on air rights as market devices, the thesis provides an analytical grammar for studying how urban air rights constitute urban financialization. It also demonstrates how a methodology of ‘following the air rights’ enables exploration of the multifaceted qualities and multiple markets that air rights configure

Proceedings of 2012 Annual Meeting of the Academy of International Business-US North East Chapter: Business Without Borders

Proceedings of the 2012 Academy of International Business-US North East Chapter Fairfield, Connecticut, October 11-13, 2012. Business Without Borders. Host, John F. Welch College of Business, Sacred Heart University. Editor, Jang\u27an Tang. AIB-NE 2012 Conference Co-Chairs, Khawaja Mamun, Ph.D. and Jang\u27an Tang

Essays in international finance

This Ph.D. thesis contains 3 essays in international finance with a focus on foreign exchange market from the perspectives of empirical asset pricing (Chapter 2 and Chapter 3), forecasting and market microstructure (Chapter 4). In Chapter 2, I derive the position-unwinding likelihood indicator for currency carry trade portfolios in the option pricing model, and show that it represents the systematic crash risk associated with global liquidity imbalances and also is able to price the cross-section of global currency, sovereign bond, and equity portfolios; I also explore the currency option-implied sovereign default risk in Merton’s framework, and link the sovereign CDS-implied credit risk premia to currency excess returns that it prices the cross section of currency carry, momentum, and volatility risk premium portfolios. In Chapter 3, I investigate the factor structure in currency market and identify three important properties of global currencies – overvalued (undervalued) currencies with respect to equilibrium exchange rates tend to be crash sensitive (insensitive) measured by copula lower tail dependence, relatively cheap (expensive) to hedge in terms of volatility risk premium, and exposed to high (low) speculative propensity gauged by skew risk premium. I further reveal that these three characteristics have rich asset pricing and asset allocation implications, e.g. striking crash-neutral and diversification benefits for portfolio optimization and risk management purposes. In Chapter 4, I examine the term structure of exchange rate predictability by return decomposition, incorporate common latent factors across a range of investment horizons into the exchange rate dynamics with a broad set of predictors, and handle both parameter uncertainty and model uncertainty. I demonstrate the time-varying term-structural effect and model disagreement effect of exchange rate determinants and the projections of predictive information over the term structure, and utilize the time-variation in the probability weighting from dynamic model averaging to identify the scapegoat drivers of customer order flows. I further comprehensively evaluate both statistical and economic significance of the model allowing for a full spectrum of currency investment management, and find that the model generates substantial performance fees

Optimising Emotions, Incubating Falsehoods: How to Protect the Global Civic Body from Disinformation and Misinformation

This open access book deconstructs the core features of online misinformation and disinformation. It finds that the optimisation of emotions for commercial and political gain is a primary cause of false information online. The chapters distil societal harms, evaluate solutions, and consider what must be done to strengthen societies as new biometric forms of emotion profiling emerge. Based on a rich, empirical, and interdisciplinary literature that examines multiple countries, the book will be of interest to scholars and students of Communications, Journalism, Politics, Sociology, Science and Technology Studies, and Information Science, as well as global and local policymakers and ordinary citizens interested in how to prevent the spread of false information worldwide, both now and in the future

Eye quietness and quiet eye in expert and novice golf performance: an electrooculographic analysis

Quiet eye (QE) is the final ocular fixation on the target of an action (e.g., the ball in golf putting). Camerabased eye-tracking studies have consistently found longer QE durations in experts than novices; however, mechanisms underlying QE are not known. To offer a new perspective we examined the feasibility of measuring the QE using electrooculography (EOG) and developed an index to assess ocular activity across time: eye quietness (EQ). Ten expert and ten novice golfers putted 60 balls to a 2.4 m distant hole. Horizontal EOG (2ms resolution) was recorded from two electrodes placed on the outer sides of the eyes. QE duration was measured using a EOG voltage threshold and comprised the sum of the pre-movement and post-movement initiation components. EQ was computed as the standard deviation of the EOG in 0.5 s bins from –4 to +2 s, relative to backswing initiation: lower values indicate less movement of the eyes, hence greater quietness. Finally, we measured club-ball address and swing durations. T-tests showed that total QE did not differ between groups (p = .31); however, experts had marginally shorter pre-movement QE (p = .08) and longer post-movement QE (p < .001) than novices. A group × time ANOVA revealed that experts had less EQ before backswing initiation and greater EQ after backswing initiation (p = .002). QE durations were inversely correlated with EQ from –1.5 to 1 s (rs = –.48 - –.90, ps = .03 - .001). Experts had longer swing durations than novices (p = .01) and, importantly, swing durations correlated positively with post-movement QE (r = .52, p = .02) and negatively with EQ from 0.5 to 1s (r = –.63, p = .003). This study demonstrates the feasibility of measuring ocular activity using EOG and validates EQ as an index of ocular activity. Its findings challenge the dominant perspective on QE and provide new evidence that expert-novice differences in ocular activity may reflect differences in the kinematics of how experts and novices execute skills