Hedging, Familiarity and Portfolio Choice

We exploit the restrictions of intertemporal portfolio choice in the presence of non-financial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor. We use a unique dataset of Swedish investors with information broken down at the investor level and into various components of wealth, investor income, tax positions and investor demographic characteristics. Portfolio holdings are identified at the stock level. We show that investors do not engage in hedging, but invest in stocks closely related to their non-financial income. We explain this with familiarity, that is the tendency to concentrate holdings in stocks with which the investor is familiar in terms of geographical of professional proximity or that he has held for a long period. We show that familiarity is not a behavioral bias, but is information-driven. Familiarity-based investment allows investors to earn higher returns than they would have otherwise earned if they had hedged.Asset pricing; Portfolio decision; Hedging

On the Real Effects of Bank Bailouts: Micro-Evidence from Japan

Exploiting the Japanese banking crisis as a laboratory, we provide firm-level evidence on the real effects of bank bailouts. Government recapitalizations result in positive abnormal returns for the clients of recapitalized banks. After recapitalizations, banks extend larger loans to their clients and some firms increase investment, but do not create more jobs than comparable firms. Most importantly, recapitalizations allow banks to extend larger loans to low and high quality firms alike, and low quality firms experience higher abnormal returns than other firms. Interestingly, recapitalizations by private investors have similar effects. Moreover, bank mergers engineered to enhance bank stability appear to hurt the borrowers of the sounder banks involved in the mergers.Recapitalization, Merger, Banking Crisis

Portfolio Diversification and City Agglomeration

We relate the degree of investor portfolio focus to the broader urban economic context of the household. Using a detailed panel of investors in Sweden over the period 1995 to 2000, we find that the level of investor diversification, as measured by number of stocks in the portfolio and by the average correlation among holdings, is partially explained by city industrial characteristics. We find that rural portfolios are more diversified than urban portfolios and that portfolio diversification is characterized by factors associated with urban growth. We consider a number of theories to explain investor focus, including behavioral biases, real and perceived informational advantage, local social competition and hedging of non-tradable risk. We find little evidence to support social and hedging motives to explain the lack of portfolio diversification, and some evidence in favor of perceived informational advantage in an urban setting. We attribute this evidence as support for the broader 'knowledge spillover' processes documented in the recent urban economics literature. Portfolio effects may be added to the list of factors that define and differentiate urbanism.

Pension Portfolio Choice and Menu Exposure

In view of the transition to funded individual account plans in many nations around the world, it is of interest to evaluate how the introduction of a funded defined contribution retirement system affects participants’ propensity to participate in the stock market. This chapter evaluates what we call the “Swedish experiment,” where, in 2000, the traditional Swedish pay-as-you go retirement system was partially replaced by a national defined contribution plan. Our main question is whether individuals perceive their investments in the pension scheme as a substitute for direct investments, and whether allocating more equities in their pension accounts induces participants to reduce or increase their directly-held equity investments. The results show that investors do not perceive direct investment in the equity market as a close substitute for their retirement accounts, suggesting that an individual account system does not crowd out direct equity market investment. Accordingly, the new Swedish system may actually help educate investors of the benefits of stock market participation, increasing participation and therefore, indirectly, boosting saving

Decoherence induced by squeezing control errors in optical and ion trap holonomic quantum computations

We study decoherence induced by stochastic squeezing control errors considering the particular implementation of Hadamard gate on optical and ion trap holonomic quantum computers. We find the fidelity for Hadamard gate and compute the purity of the final state when the control noise is modeled by Ornstein-Uhlenbeck stochastic process. We demonstrate that in contradiction to the case of the systematic control errors the stochastic ones lead to decoherence of the final state. In the small errors limit we derive a simple formulae connecting the gate fidelity and the purity of the final state.Comment: RevTex, 5 pages, few typos correcte

Effective Quark Lagrangian in the Instanton Vacuum with Nonzero Modes Included

A new approach to effective theory of quarks in the instanton vacuum is presented. Exact equations for the quark propagator and Lagrangian are derived which contain contributions of all quark modes with known coefficients. The resulting effective Lagrangian differs from the standard one and resembles that of the Nambu-Jona-Lasinio model.Comment: 5 page