Bidding With Securities: Auctions and Security Design

We study security-bid auctions in which bidders compete by bidding with securities whose payments are contingent on the realized value of the asset being sold. Such auctions are commonly used, both formally and informally. In formal auctions, the seller restricts bids to an ordered set, such as an equity share or royalty rate, and commits to a format, such as first or second-price. In informal settings with competing buyers, the seller does not commit to a mechanism upfront. Rather, bidders offer securities and the seller chooses the most attractive bid, based on his beliefs, ex-post. We characterize equilibrium payoffs and bidding strategies for formal and informal auctions. For formal auctions, we examine the impact of both the security design and the auction format. We define a notion of the steepness of a set of securities, and show that steeper securities lead to higher revenues. We also show that the revenue equivalence principle holds for equity and cash auctions, but that it fails for debt (second-price auctions are superior) and for options (a first-price auction yields higher revenues). We then show that an informal auction yields the lowest possible revenues across all possible formal mechanisms. Finally, we extend our analysis to consider the effects of liquidity constraints, different information assumptions, and aspects of moral hazard.

Persuasion bias, social influence, and uni-dimensional opinions.

We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one’s influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals’ opinions over a multidimensional set of issues converge to a single “left-right” spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.

A Model of Persuasion - With Implications for Financial Markets

We propose a model of the phenomenon of persuasion. We argue that individual beliefs evolve in a way that overweights the opinions and information of individuals whom they "listen to" relative to other individuals. Such agents can be understood to be acting as though they believe they listen to a representative sample of the individuals with valuable information, even though they may not. We analyze dynamics and convergence of beliefs, characterizing when agents' beliefs converge over time to the same beliefs, and when they instead diverge. Convergent beliefs can be characterized as the weighted average of agents' initial beliefs, and these weights can be interpreted as a measure of ``influence.'' We then explore implications in an asset trading setting. Here we demonstrate that agents profit from being influential as well as being accurate. When agents' choice of whom to listen to is endogenous, we show that an individual's influence can be persistent, even though the individual may be inaccurate.

Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive

We examine the pervasive view that “equity is expensive,” which leads to claims that high capital requirements are costly and would affect credit markets adversely. We find that arguments made to support this view are either fallacious, irrelevant, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. Any desirable public subsidies to banks’ activities should be given directly and not in ways that encourage leverage. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support. We conclude that bank equity is not socially expensive, and that high leverage is not necessary for banks to perform all their socially valuable functions, including lending, taking deposits and issuing money-like securities. To the contrary, better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal, and, viewed from an ex ante perspective, high leverage may not even be privately optimal for banks. Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy.capital regulation, financial institutions, capital structure, too big to fail, systemic risk, bank equity, contingent capital, Basel.

Test design and minimum standards

We analyze test design and certification standards when an uninformed seller has the option to generate and disclose costly information regarding asset quality. We characterize equilibria by a minimum principle: the test and disclosure policy are chosen to minimize the asset’s value conditional on nondisclosure. Thus, when sellers choose the information provided, simple pass/fail certification tests are likely to dominate the market. A social planner could raise informational and allocative efficiency, and lower deadweight testing costs, by raising the certification standard. Monopolist certifiers also satisfy the minimum principle but set a higher standard and reduce testing rates to maximize revenue

Endogenous Information Flows and the Clustering of Announcements

We consider the strategic timing of information releases in a dynamic disclosure model. Because investors don’t know whether or when the firm is informed, the firm will not necessarily disclose immediately. We show that bad market news can trigger the immediate release of information by firms. Conversely, good market news slows the release of information by firms. Thus, our model generates clustering of negative announcements. Surprisingly, this result holds only when firms can preemptively disclose their own information prior to the arrival of external information. These results have implications for conditional variance and skewness of stock returns.

Zen meditation, length of telomeres, and the role of experiential avoidance and compassion

Mindfulness refers to an awareness that emerges by intentionally focusing on the present experience in a nonjudgmental or evaluative manner. Evidence regarding its efficacy has been increasing exponentially, and recent research suggests that the practice of meditation is associated with longer leukocyte telomere length. However, the psychological mechanisms underlying this potential relationship are unknown. We examined the telomere lengths of a group of 20 Zen meditation experts and another 20 healthy matched comparison participants who had not previously meditated. We also measured multiple psychological variables related to meditation practice. Genomic DNA was extracted for telomere measurement using a Life Length proprietary program. High-throughput quantitative fluorescence in situ hybridization (HT-Q-FISH) was used to measure the telomere length distribution and the median telomere length (MTL). The meditators group had a longer MTL (p = 0.005) and a lower percentage of short telomeres in individual cells (p = 0.007) than those in the comparison group. To determine which of the psychological variables contributed more to telomere maintenance, two regression analyses were conducted. In the first model, which applied to the MTL, the following three factors were significant: age, absence of experiential avoidance, and Common Humanity subscale of the Self Compassion Scale. Similarly, in the model that examined the percentage of short telomeres, the same factors were significant: age, absence of experiential avoidance, and Common Humanity subscale of the Self Compassion Scale. Although limited by a small sample size, these results suggest that the absence of experiential avoidance of negative emotions and thoughts is integral to the connection between meditation and telomeres

Combination of methylated-DNA precipitation and methylation-sensitive restriction enzymes (COMPARE-MS) for the rapid, sensitive and quantitative detection of DNA methylation

Hypermethylation of CpG island (CGI) sequences is a nearly universal somatic genome alteration in cancer. Rapid and sensitive detection of DNA hypermethylation would aid in cancer diagnosis and risk stratification. We present a novel technique, called COMPARE-MS, that can rapidly and quantitatively detect CGI hypermethylation with high sensitivity and specificity in hundreds of samples simultaneously. To quantitate CGI hypermethylation, COMPARE-MS uses real-time PCR of DNA that was first digested by methylation-sensitive restriction enzymes and then precipitated by methyl-binding domain polypeptides immobilized on a magnetic solid matrix. We show that COMPARE-MS could detect five genome equivalents of methylated CGIs in a 1000- to 10 000-fold excess of unmethylated DNA. COMPARE-MS was used to rapidly quantitate hypermethylation at multiple CGIs in >155 prostate tissues, including benign and malignant prostate specimens, and prostate cell lines. This analysis showed that GSTP1, MDR1 and PTGS2 CGI hypermethylation as determined by COMPARE-MS could differentiate between malignant and benign prostate with sensitivities >95% and specificities approaching 100%. This novel technology could significantly improve our ability to detect CGI hypermethylation

Burnout subtypes and absence of self-compassion in primary healthcare professionals: A cross-sectional study

Background: Primary healthcare professionals report high levels of distress and burnout. A new model of burnout has been developed to differentiate three clinical subtypes: ‘frenetic’, ‘underchallenged’ and ‘worn-out’. The aim of this study was to confirm the validity and reliability of the burnout subtype model in Spanish primary healthcare professionals, and to assess the explanatory power of the self-compassion construct as a possible protective factor.Method: The study employed a cross-sectional design. A sample of n = 440 Spanish primary healthcare professionals (214 general practitioners, 184 nurses, 42 medical residents) completed the Burnout Clinical Subtype Questionnaire (BCSQ-36), the Maslach Burnout Inventory General Survey (MBI-GS), the Self-Compassion Scale (SCS), the Utrecht Work Engagement Scale (UWES) and the Positive and Negative Affect Schedule (PANAS). The factor structure of the BCSQ-36 was estimated using confirmatory factor analysis (CFA) by the unweighted least squares method from polychoric correlations. Internal consistency (R) was assessed by squaring the correlation between the latent true variable and the observed variables. The relationships between the BCSQ-36 and the other constructs were analysed using Spearman’s r and multiple linear regression models.Results: The structure of the BCSQ-36 fit the data well, with adequate CFA indices for all the burnout subtypes. Reliability was adequate for all the scales and sub-scales (R=0.75). Self-judgement was the self-compassion factor that explained the frenetic subtype (Beta = 0.36; p<0.001); isolation explained the underchallenged (Beta = 0.16; p = 0.010); and over-identification the worn-out (Beta = 0.25; p = 0.001). Other significant associations were observed between the different burnout subtypes and the dimensions of the MBI-GS, UWES and PANAS.Conclusions: The typological definition of burnout through the BCSQ-36 showed good structure and appropriate internal consistence in Spanish primary healthcare professionals. The negative self-compassion dimensions seem to play a relevant role in explaining the burnout profiles in this population, and they should be considered when designing specific treatments and interventions tailored to the specific vulnerability of each subtype

Effects of non-pharmacological interventions on inflammatory biomarker expression in patients with fibromyalgia: A systematic review

Introduction: Fibromyalgia (FM) is a prevalent disorder. However, few studies have evaluated the effect of treatment interventions on biomarker expression. The aim of this review was to explore the efficacy of non-pharmacological interventions on inflammatory biomarker expression, specifically cytokines, neuropeptides and C-reactive protein (CRP), in FM patients. Method: A literature search using PubMed, EMBASE, PsycINFO and the Cochrane library was performed from January 1990 to March 2015. Randomized controlled trials (RCTs) and non-RCTs published in English, French or Spanish were eligible. Results: Twelve articles with a total of 536 participants were included. After exercise, multidisciplinary, or dietary interventions in FM patients, interleukin (IL) expression appeared reduced, specifically serum IL-8 and IL-6 (spontaneous, lipopolysaccharide (LPS)-induced, or serum). Furthermore, the changes to insulin-like growth factor 1 (IGF-1) levels might indicate a beneficial role for fatigue in obese FM patients. In contrast, evidence of changes in neuropeptide and CRP levels seemed inconsistent. Conclusion: Despite minimal evidence, our findings indicate that exercise interventions might act as an anti-inflammatory treatment in FM patients and ameliorate inflammatory status, especially for pro-inflammatory cytokines. Additional RCTs focused on the changes to inflammatory biomarker expression after non-pharmacological interventions in FM patients are needed