Transferring cognitive talent across domains to reduce the disposition effect in investment.

We consider Theory of Mind (ToM), the ability to correctly predict the intentions of others. To an important degree, good ToM function requires abstraction from one's own particular circumstances. Here, we posit that such abstraction can be transferred successfully to other, non-social contexts. We consider the disposition effect, which is a pervasive cognitive bias whereby investors, including professionals, improperly take their personal trading history into account when deciding on investments. We design an intervention policy whereby we attempt to transfer good ToM function, subconsciously, to personal investment decisions. In a within-subject repeated-intervention laboratory experiment, we record how the disposition effect is reduced by a very significant 85%, but only for those with high scores on the social-cognitive dimension of ToM function. No such transfer is observed in subjects who score well only on the social-perceptual dimension of ToM function. Our findings open up a promising way to exploit cognitive talent in one domain in order to alleviate cognitive deficiencies elsewhere

Rational expectations and the term structure of interest rates

Abstract not availabl

Rational expectations and the term structure of interest rates

Abstract not availabl

The Samuelson hypothesis in futures markets : an analysis using intraday data

This paper considers the Samuelson hypothesis, which argues that the futures price volatility increases as the futures contract approaches its expiration. Utilizing intraday data from 20 futures markets in six futures exchanges, we find strong support for the Samuelson hypothesis in agricultural futures. However, the Samuelson hypothesis does not hold for other futures contracts. We also provide supporting evidence that the &lsquo;negative covariance&rsquo; hypothesis is the key factor for the empirical support of the Samuelson hypothesis. In addition, our findings remain largely unaltered even after we control for seasonality and liquidity effects.<br /

Capital Structure of IPOs and Seasoned Firms Under an Imputation System

This paper examines the relationship between tax status and capital structure while controlling for company history. The capital structure of a sample of IPOs is compared to seasoned companies as it is argued that the capital structure of IPOs is not as affected by the history of decisions and experiences as that of seasoned firms. Thus any link between tax optimisation and capital structure is more likely to be identified in IPO firms. Australia however, unlike many parts of the world, has had a full dividend imputation system since 1987. This theoretically at least should remove any bias between the use of debt and equity for taxpaying companies, while the bias remains for non-taxpaying companies unable to take advantage of the tax saving from debt. We find that non-taxpaying IPOs have significantly lower levels of debt than taxpaying IPOs, a result consistent with the tax incentive hypothesis

Intraweek and intraday trade patterns and dynamics

This paper investigates informed traders' order-splitting strategies on different days of the week and times of the day for a sample of stocks traded on the Australian Stock Exchange. Based on cumulative price changes, we document that informed traders tend to use medium size trades. We find that informed investors concentrate their strategic trading on Mondays and particularly during the first trading hour. In addition, informed investors also use large size trades around market opening and closing, as well as on days other than Mondays and Fridays. These results are more pronounced for the large market capitalization stocks.Discretionary liquidity traders Informed traders Time-of-the-day effect Day-of-the-week effect Stealth trading Strategic order-splitting

The Information Content of the Term Structure of Interest

This paper presents the results of an alternative test of the rational expectations theory of the term structure of interest rates. The validity of the expectations hypothesis of term structure has also been examined by other researchers. While there is more often rejection of the expectations hypothesis, no other theory (data-consistent with the entire yield curve) provides empiricailly adequate expleination of this phenomenon. The study considers postwar U.S. pure discount (zero coupon) bond yields with various maturities, starting from one month throughout 60 months. Based on the ex-post formation of rational expectations, we quantify the expectations error and test the level of truth of the expectations hypothesis, that is, the strength of the departure of the yield curve from the expectations theory. The results suggest that a significant amount of information available at no cost to market agents is not incorporated in forming people's expectations