Three Essays in Financial Economics

El primer capítol, titulat "PROMETENT FRACÀS: Retòrica Política i Empresatial com a Determinant de l'Èxit" estableix una relació negativa entre el número de promeses fetes per polítics i companyies i el seu conseqüent rendiment. Mostro que les empreses que fan poc ús del temps futur en els seus informes annuals superen significativament aquelles que l'utilitzen més. De la mateixa manera, en totes les eleccions presidencials dels E.U.A. des del 1960 fins el 2004, el candidat que va fer un menor ús del futur durant els debats televisats va guanyar el vot popular. Mostro que la freqüència en que s'usa el futur a les frases està fortament correlacionat amb la freqüència de fer promeses i que aquesta última pot ser modelada en un marc de teoria de jocs. Paraules clau: eficiència de mercat, anomalies de preus, cheap talkEl segon capítol, "Valorant Contractes d'Assegurança de la Hipoteca en Economies de Mercat Emergents", tracta de l'aplicació d'opcions reals per a posar preus a contractes d'asseguraça de la hipoteca. Deselvolupem un nou mètode basat en opcions per a l'avaluació de contractes d'assegurança de la hipoteca en forma tancada en una economia en la qual els agents són neutrals al risc. Mentre el mètode d'avaluació proposat és general i pot ser usat en qualsevol mercat, pot ser particularment útil en economies de mercat emergentsen les quals altres mètodes existents poden ser inapropiats o són massa difícils d'implementar degut a la manca de dades relevants. És el primer article que desenvolupa un marc de preu d'opcions per a posar preus a contractes AH en forma tancada. D'aquesta manera podem obtenir resultats d'estàtiques comparatives de forma analítica en comptes de forma numèrica, com sol ser el cas en literatura relacionada. Aquest és el primer article que quantifica els efectes de la ineficiècia legal en el preu dels contractes AH i demostra que aquest efectes poden ser significants i s'haurien de tenir en consideració alhora de posar preu en aquest tipus de contractes. Paraules clau: assegurança d'hipoteca, quota de morositat, quota de prepagament, fòrmula black-scholes. El tercer capítol es titula "Conseqüències de l'increment de la longevitat en la riquesa, fertilitat i el creixament de la població". Presentem, solucionem i simulem numèricament un model simple que descriu les conseqüències del creixement de la longetivitat per a la taxa de fertilitat, el creixement de la població i la distribució de riquesa en societats desevolupades. Veiem les consequüències de l'ús repetit de tècniques d'extensió de la vida i mostrem que representen una nova matèria prima, la introducció de la qual influenciarà en gran mesura aspectes claus de l'economia i la societat en general. En particular, desvelem dues fases en el nostre model simplificat, que anomenem "mortal" i "immortal".The first essay, titled "PROMISING FAILURE: Political and Company Rhetoric as a Determinant of Success" establishes a negative relationship between the number of promises made by politicians and companies and their consequent performance. I show that firms that make sparing use of the future tense in their annual reports significantly outperform those that use it more. Similarly, in all of the U.S. presidential elections from 1960 through 2004, the candidate who made less use of the future tense during the televised debates won the popular vote. I show that the frequency of using future-tense sentences is strongly correlated with the frequency of making promises and that the latter can be modeled within a game-theoretic framework. Keywords: market efficiency, pricing anomalies, cheap talkThe second essay, "Valuing Mortgage Insurance Contracts in Emerging Market Economies", deals with application of real options for pricing of mortgage insurance contracts. We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. It is the first paper to develop an option-pricing framework for pricing MI contracts in closed form. As a result, comparative static results can be obtained analytically instead of numerically, as is typically the case in the related literature. This is the first paper that quantifies the effects of legal inefficiency on the pricing of MI contracts and demonstrates that these effects can be quite significant and should be taken into account when pricing MI contracts. Keywords: mortgage insurance, default rate, prepayment rate, black-scholes formula, The third essay is titled "Consequences of increased longevity for wealth, fertility and population growth". We present, solve and numerically simulate a simple model that describes the consequences of increased longevity for fertility rates, population growth and the distribution of wealth in developed societies. We look at the consequences of the repeated use of life extension techniques and show that they represent a novel commodity whose introduction will profoundly influence key aspects of the economy and society in general. In particular, we uncover two phases within our simplified model, labeled as "mortal" and "immortal"

Three Essays in Financial Economics

El primer capítol, titulat "PROMETENT FRACÀS: Retòrica Política i Empresatial com a Determinant de l'Èxit" estableix una relació negativa entre el número de promeses fetes per polítics i companyies i el seu conseqüent rendiment. Mostro que les empreses que fan poc ús del temps futur en els seus informes annuals superen significativament aquelles que l'utilitzen més. De la mateixa manera, en totes les eleccions presidencials dels E.U.A. des del 1960 fins el 2004, el candidat que va fer un menor ús del futur durant els debats televisats va guanyar el vot popular. Mostro que la freqüència en que s'usa el futur a les frases està fortament correlacionat amb la freqüència de fer promeses i que aquesta última pot ser modelada en un marc de teoria de jocs. Paraules clau: eficiència de mercat, anomalies de preus, cheap talkEl segon capítol, "Valorant Contractes d'Assegurança de la Hipoteca en Economies de Mercat Emergents", tracta de l'aplicació d'opcions reals per a posar preus a contractes d'asseguraça de la hipoteca. Deselvolupem un nou mètode basat en opcions per a l'avaluació de contractes d'assegurança de la hipoteca en forma tancada en una economia en la qual els agents són neutrals al risc. Mentre el mètode d'avaluació proposat és general i pot ser usat en qualsevol mercat, pot ser particularment útil en economies de mercat emergentsen les quals altres mètodes existents poden ser inapropiats o són massa difícils d'implementar degut a la manca de dades relevants. És el primer article que desenvolupa un marc de preu d'opcions per a posar preus a contractes AH en forma tancada. D'aquesta manera podem obtenir resultats d'estàtiques comparatives de forma analítica en comptes de forma numèrica, com sol ser el cas en literatura relacionada. Aquest és el primer article que quantifica els efectes de la ineficiècia legal en el preu dels contractes AH i demostra que aquest efectes poden ser significants i s'haurien de tenir en consideració alhora de posar preu en aquest tipus de contractes. Paraules clau: assegurança d'hipoteca, quota de morositat, quota de prepagament, fòrmula black-scholes. El tercer capítol es titula "Conseqüències de l'increment de la longevitat en la riquesa, fertilitat i el creixament de la població". Presentem, solucionem i simulem numèricament un model simple que descriu les conseqüències del creixement de la longetivitat per a la taxa de fertilitat, el creixement de la població i la distribució de riquesa en societats desevolupades. Veiem les consequüències de l'ús repetit de tècniques d'extensió de la vida i mostrem que representen una nova matèria prima, la introducció de la qual influenciarà en gran mesura aspectes claus de l'economia i la societat en general. En particular, desvelem dues fases en el nostre model simplificat, que anomenem "mortal" i "immortal".The first essay, titled "PROMISING FAILURE: Political and Company Rhetoric as a Determinant of Success" establishes a negative relationship between the number of promises made by politicians and companies and their consequent performance. I show that firms that make sparing use of the future tense in their annual reports significantly outperform those that use it more. Similarly, in all of the U.S. presidential elections from 1960 through 2004, the candidate who made less use of the future tense during the televised debates won the popular vote. I show that the frequency of using future-tense sentences is strongly correlated with the frequency of making promises and that the latter can be modeled within a game-theoretic framework. Keywords: market efficiency, pricing anomalies, cheap talkThe second essay, "Valuing Mortgage Insurance Contracts in Emerging Market Economies", deals with application of real options for pricing of mortgage insurance contracts. We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. It is the first paper to develop an option-pricing framework for pricing MI contracts in closed form. As a result, comparative static results can be obtained analytically instead of numerically, as is typically the case in the related literature. This is the first paper that quantifies the effects of legal inefficiency on the pricing of MI contracts and demonstrates that these effects can be quite significant and should be taken into account when pricing MI contracts. Keywords: mortgage insurance, default rate, prepayment rate, black-scholes formula, The third essay is titled "Consequences of increased longevity for wealth, fertility and population growth". We present, solve and numerically simulate a simple model that describes the consequences of increased longevity for fertility rates, population growth and the distribution of wealth in developed societies. We look at the consequences of the repeated use of life extension techniques and show that they represent a novel commodity whose introduction will profoundly influence key aspects of the economy and society in general. In particular, we uncover two phases within our simplified model, labeled as "mortal" and "immortal"

The forward-looking disclosures of corporate managers: theory and evidence

We consider an infinitely repeated game in which a privately informed, long-lived manager raises funds from short-lived investors in order to finance a project. The manager can signal project quality to investors by making a (possibly costly) forward-looking disclosure about her project’s potential for success. We find that if the manager’s disclosures are costly, she will never release forward-looking statements that do not convey information to external investors. Furthermore, managers of firms that are transparent and face significant disclosure-related costs will refrain from forward-looking disclosures. In contrast, managers of opaque and profitable firms will follow a policy of accurate disclosures. To test our findings empirically, we devise an index that captures the quantity of forward-looking disclosures in public firms’ 10-K reports, and relate it to multiple firm characteristics. For opaque firms, our index is positively correlated with a firm’s profitability and financing needs. For transparent firms, there is only a weak relation between our index and firm fundamentals. Furthermore, the overall level of forward-looking disclosures declined significantly between 2001 and 2009, possibly as a result of the 2002 Sarbanes-Oxley Act

Consequences of increased longevity for wealth, fertility, and population growth

We present, solve and numerically simulate a simple model that describes the consequences of increased longevity on fertility rates, population growth and the distribution of wealth in developed societies. We look at the consequences of the repeated use of life extension techniques and show that they represent a novel commodity whose introduction will profoundly influence key aspects of economy and society in general. In particular, we uncover two phases within our simplified model, labeled as 'mortal' and 'immortal'. Within the life extension scenario it is possible to have sustainable economic growth in a population of stable size, as a result of dynamical equilibrium between the two phases.

Revealing the Hidden Language of Complex Networks

Sophisticated methods for analysing complex networks promise to be of great benefit to almost all scientific disciplines, yet they elude us. In this work, we make fundamental methodological advances to rectify this. We discover that the interaction between a small number of roles, played by nodes in a network, can characterize a network's structure and also provide a clear real-world interpretation. Given this insight, we develop a framework for analysing and comparing networks, which outperforms all existing ones. We demonstrate its strength by uncovering novel relationships between seemingly unrelated networks, such as Facebook, metabolic, and protein structure networks. We also use it to track the dynamics of the world trade network, showing that a country's role of a broker between non-trading countries indicates economic prosperity, whereas peripheral roles are associated with poverty. This result, though intuitive, has escaped all existing frameworks. Finally, our approach translates network topology into everyday language, bringing network analysis closer to domain scientists