A Statistical Analysis of Log-Periodic Precursors to Financial Crashes

Motivated by the hypothesis that financial crashes are macroscopic examples of critical phenomena associated with a discrete scaling symmetry, we reconsider the evidence of log-periodic precursors to financial crashes and test the prediction that log-periodic oscillations in a financial index are embedded in the mean function of this index. In particular, we examine the first differences of the logarithm of the S&P 500 prior to the October 87 crash and find the log-periodic component of this time series is not statistically significant if we exclude the last year of data before the crash. We also examine the claim that two separate mechanisms are responsible for draw downs in the S&P 500 and find the evidence supporting this claim to be unconvincing.Comment: 26 pages, 10 figures, figures are incorporated into paper, some changes to the text have been mad

Automated census record linking: a machine learning approach

Thanks to the availability of new historical census sources and advances in record linking technology, economic historians are becoming big data genealogists. Linking individuals over time and between databases has opened up new avenues for research into intergenerational mobility, assimilation, discrimination, and the returns to education. To take advantage of these new research opportunities, scholars need to be able to accurately and efficiently match historical records and produce an unbiased dataset of links for downstream analysis. I detail a standard and transparent census matching technique for constructing linked samples that can be replicated across a variety of cases. The procedure applies insights from machine learning classification and text comparison to the well known problem of record linkage, but with a focus on the sorts of costs and benefits of working with historical data. I begin by extracting a subset of possible matches for each record, and then use training data to tune a matching algorithm that attempts to minimize both false positives and false negatives, taking into account the inherent noise in historical records. To make the procedure precise, I trace its application to an example from my own work, linking children from the 1915 Iowa State Census to their adult-selves in the 1940 Federal Census. In addition, I provide guidance on a number of practical questions, including how large the training data needs to be relative to the sample.This research has been supported by the NSF-IGERT Multidisciplinary Program in Inequality & Social Policy at Harvard University (Grant No. 0333403)

The vicious cycle: fundraising and perceived visibility in US presidential primaries

Scholars of presidential primaries have long posited a dynamic positive feedback loop between fundraising and electoral success. Yet existing work on both directions of this feedback remains inconclusive and is often explicitly cross-sectional, ignoring the dynamic aspect of the hypothesis. Pairing high-frequency FEC data on contributions and expenditures with Iowa Electronic Markets data on perceived probability of victory, we examine the bidirectional feedback between contributions and viability. We find robust, significant positive feedback in both directions. This might suggest multiple equilibria: a candidate initially anointed as the front-runner able to sustain such status solely by the fundraising advantage conferred despite possessing no advantage in quality. However, simulations suggest the feedback loop cannot, by itself, sustain advantage. Given the observed durability of front-runners, it would thus seem there is either some other feedback at work and/or the process by which the initial front-runner is identified is informative of candidate quality

The return to education in the mid-20th century: evidence from twins

What was the return to education in the US at mid-century? In 1940, the correlation between years of schooling and earnings was relatively low. In this paper, we estimate the causal return to schooling in 1940, constructing a large linked sample of twin brothers to account for differences in unobserved ability and family background. We find that each additional year of schooling increased labor earnings by approximately 4%, about half the return found for more recent cohorts in contemporary twins studies. These returns were evident both within and across occupations and were higher for sons from lower SES families.First author draf

Capital Destruction and Economic Growth: The Effects of Sherman’s March, 1850-1920

Working paper.Using General William Sherman’s 1864--65 military march through Georgia, South Carolina, and North Carolina during the American Civil War, this paper studies the effect of capital destruction on short- and long-run local economic activity, and the role of financial markets in the recovery process. We match an 1865 US War Department map of Sherman’s march to county-level demographic, agricultural, and manufacturing data from the 1850–1920 US Censuses. We show that the capital destruction induced by the March led to a large contraction in agricultural investment, farming asset prices, and manufacturing activity. Elements of the decline in agriculture persisted through 1920. Using information on local banks and access to credit, we argue that the underdevelopment of financial markets played a role in weakening the recovery

Precautionary Learning and Inflationary Biases

Recursive least squares learning is a central concept employed in selecting amongst competing outcomes of dynamic stochastic economic models. In employing least squares estimators, such learning relies on the assumption of a symmetric loss function defined over estimation errors. Within a statistical decision making context, this loss function can be understood as a second order approximation to a von-Neumann Morgenstern utility function. This paper considers instead the implications for adaptive learning of a third order approximation. The resulting asymmetry leads the estimator to put more weight on avoiding mistakes in one direction as opposed to the other. As a precaution against making a more costly mistake, a statistician biases his estimates in the less costly direction by an amount proportional to the variance of the estimate. We investigate how this precautionary bias will affect learning dynamics in a model of inflationary biases. In particular we find that it is possible to maintain a lower long run inflation rate than could be obtained in a time consistent rational expectations equilibrium.Least squares learning, time inconsistency, statistical decision making

'Descended from immigrants and revolutionists': how family immigration history shapes representation in Congress

Does recent immigrant lineage influence the legislative behavior of members of Congress on immigration policy? We examine the relationship between the immigrant background of legislators (i.e., their generational distance from immigration) and legislative behavior, focusing on roll-call votes for landmark immigration legislation and congressional speech on the floor. Legislators more proximate to the immigrant experience tend to support more permissive immigration legislation. Legislators with recent immigration backgrounds also speak more often about immigration in Congress, though the size of immigrant constituencies in their districts accounts for a larger share of this effect. A regression discontinuity design on close elections, which addresses selection bias concerns and holds district composition constant, confirms that legislators with recent immigrant backgrounds tend to support pro-immigration legislation. Finally, we demonstrate how a common immigrant identity can break down along narrower ethnic lines in cases where restrictive legislation targets specific places of origin. Our findings illustrate the important role of immigrant identity in legislative behavior and help illuminate the legislative dynamics of present-day immigration policy.Accepted manuscrip

How legislators respond to localized economic shocks: evidence from Chinese import competition

We explore the effects of localized economic shocks from trade on roll-call behavior and electoral outcomes in the US House, 1990–2010. We demonstrate that economic shocks from Chinese import competition—first studied by Autor, Dorn, and Hanson—cause legislators to vote in a more protectionist direction on trade bills but cause no change in their voting on all other bills. At the same time, these shocks have no effect on the reelection rates of incumbents, the probability an incumbent faces a primary challenge, or the partisan control of the district. Though changes in economic conditions are likely to cause electoral turnover in many cases, incumbents exposed to negative economic shocks from trade appear able to fend off these effects in equilibrium by taking strategic positions on foreign-trade bills. In line with this view, we find that the effect on roll-call voting is strongest in districts where incumbents are most threatened electorally. Taken together, these results paint a picture of responsive incumbents who tailor their roll-call positions on trade bills to the economic conditions in their districts

Discrete Scale Invariance and the "Second Black Monday"

Evidence is offered for log-periodic (in time) fluctuations in the S&P 500 stock index during the three years prior to the October 27, 1997 "correction". These fluctuations were expected on the basis of a discretely scale invariant rupture phenomenology of stock market crashes proposed earlier.Comment: LaTeX file, 4 pages, 2 figure

From the bargaining table to the ballot box: political effects of right to work laws

Labor unions play a central role in the Democratic party coalition, providing candidates with voters, volunteers, and contributions, as well as lobbying policymakers. Has the sustained decline of organized labor hurt Democrats in elections and shifted public policy? We use the enactment of right-to-work laws—which weaken unions by removing agency shop protections—to estimate the effect of unions on politics from 1980 to 2016. Comparing counties on either side of a state and right-to-work border to causally identify the effects of the state laws, we find that right-towork laws reduce Democratic Presidential vote shares by 3.5 percentage points. We find similar effects in US Senate, US House, and Gubernatorial races, as well as on state legislative control. Turnout is also 2 to 3 percentage points lower in right-to-work counties after those laws pass. We next explore the mechanisms behind these effects, finding that right-to-work laws dampen organized labor campaign contributions to Democrats and that potential Democratic voters are less likely to be contacted to vote in right-to-work states. The weakening of unions also has large downstream effects both on who runs for office and on state legislative policy. Fewer working class candidates serve in state legislatures and Congress, and state policy moves in a more conservative direction following the passage of right-to-work laws