The Value Spread

We decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small fraction (20%) of the total cross-sectional variance. The remaining dispersion can be explained by expected 15-year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. We also show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book-to-market ratio of a typical value stock and a typical growth stock) is wide.

Experimental studies of perceptual processes, section two Progress report, Jan. - Sep. 30, 1965

Complex discriminative behavior, fixed ratio reinforcement of large units of behavior and deferred reinforcement studied in chimpanzee

Money Illusion in the Stock Market: The Modigliani-Cohn Hypothesis

Modigliani and Cohn [1979] hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has implications for the pricing of risky stocks relative to safe stocks. Simultaneously examining the pricing of Treasury bills, safe stocks, and risky stocks allows us to distinguish money illusion from any change in the attitudes of investors towards risk. Our empirical resuts support the hypothesis that the stock market suffers from money illusion.

The Price is (Almost) Right

Most previous research tests market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis. In contrast, we measure the ability of a simple risk model and the efficient-market hypothesis to explain the level of stock prices. First, we find that cash-flow betas (measured by regressing firms' earnings on the market's earnings) explain the prices of value and growth stocks well, with a plausible premium. Second, we use a present-value model to decompose the cross-sectional variance of firms' price-to-book ratios into two components due to risk-adjusted fundamental value and mispricing. When we allow the discount rates to vary with cash-flow betas, the variance share of mispricing is negligible.

Who Underreacts to Cash-Flow News? Evidence from Trading between Individuals and Institutions

A large body of literature suggests that firm-level stock prices 'underreact' to news about future cash flows, i.e., shocks to a firm's expected cash flows are positively correlated with shocks to expected returns on its stock. We estimate a vector autoregession to examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Our main finding is that institutions buy shares from individuals in response to good cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up in the absence of positive cash-flow news, institutions sell shares to individuals. Although institutions are trading in the 'right' direction, institutions as a group outperform individuals by only 1.44 percent per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weight market index.

The rise of Donald Trump’s “White Wall” means that 2017 will not be a good year for politics

In a recent article, Professor Inderjeet Parmar argued that not only was 2016 a great year for US politics, but that 2017 will be “even better”. Professor Randolph B. Persaud takes issue with these claims, arguing that with Trump’s election liberal identity politics is being replaced by a new patriotism based on a resurgent sense of Whiteness set against countries such as China and Mexico, and ‘other’ groups like Muslims. In addition, far from hurting the billionaire class and capitalist elites, Trump’s victory has instead put them in the driver’s seat

Learning What is Top-of-Mind: A Course on Neuro-Information Systems

Neuromarketing, neuro-economics, and now the field of neuro-information systems (neuro-IS) is growing and our students want to know more about it all. This poster presents an elective course targeted to undergraduate IS majors. The course is focused on design aspects of brain-based computer interfaces for people with disabilities, new uses in organizations, and better understanding of human mental states. Students read seminal book chapters and papers, engage with guest lecturers on specialized topics, and watch related video and films to gain a background in the latest brain-based technology and its application to various organizations. The course material focuses on design, usability, psychological and cognitive states of users, and evaluation. Students demonstrate their understanding of key concepts by designing and conducting a related research study, analyzing a case in the field, or designing their own brain-based interface. Taught to forty undergraduate students in a face-to-face format, the course was met with positive reviews and sparked creation in an online format