Investor Sentiment and Employment

__Abstract__ We find that investor sentiment should affect a firm's employment policy in a world with moral hazard and noise traders. Consistent with the model's predictions, we show that higher sentiment among US investors leads to: (1) higher employment growth worldwide; (2) lower labor productivity, as the growth in employment is not matched by real value added growth; and (3) positive wage growth in countries with a greater proportion of high-skill labor, but negative wage growth otherwise. We also find evidence that sentiment induces greater labor instability during financial crises, which sheds new light on the view that financial development has a "dark side". Overall, the results suggest that sentiment has real effects, especially in countries that attract more foreign direct investments from the US and that are perceived as more popular among US investors

Behavioural Real Estate

The behavioural approach to decision making under uncertainty combines insights from psychology and sociology into economic decision making. It steps away from the normative homo economicus and introduces a positive approach to human decision making under uncertainty. We provide an overview of the main themes in the behavioural real estate literature from the perspective of different market participants. It can be concluded that there seems to be general agreement that behavioural studies can help explain the inefficiency of real estate markets, but a large component of behavioural decision making in the property markets seems to be undiscovered

Fundamentals or Trends?

This paper contributes to the discussion whether changes in house prices can be explained by fundamental factors or trends. Using a long-term time series covering 350 years of house prices along the Herengracht in Amsterdam , we examine whether a fundamental factor or a trend explains house prices and whether their explanatory power is time varying. We find that agents in the housing market switch in their formation of expectations about future changes in house prices between fundamental and momentum strategies. Specifically, we show that agents base their expectations more on fundamentals during economic slowdowns and more on recent trends or momentum during economic booms

A Critical Review of the Fair Value Settlement Procedure for Stock Options

We review the European practice of fair value settlement of stock options after a successful takeover bid. We argue on both fundamental and practical grounds that the inherent complexity, arbitrariness and inaccuracy of fair value calculations call for replacement by intrinsic value settlement. This alternative is simple, transparent, well-defined, and common practice at other exchanges

Company Name Fluency and Stock Returns

Recent research shows that stocks with fluent names trade at higher prices, but it is not clear whether fluency conveys information or simply appeals to unsophisticated investors. In this paper, we tease out these two hypotheses. We find that fluent stocks yield higher risk-adjusted returns than nonfluent ones, and that this difference increases with the size of noise trader demand. These results lend support to the information story, according to which fluency is only partly reflected in prices due to noise traders' inability to evaluate it. Our findings speak to a more general literature on the underpricing of intangibles

Model Uncertainty and Exchange Rate Forecasting

We propose a theoretical framework of exchange rate behavior where investors focus on a subset of economic fundamentals. We find that any adjustment in the set of predictors used by investors leads to changes in the relation between the exchange rate and fundamentals. We test the validity of this framework via a backward elimination rule which captures the current set of fundamentals that best predicts the exchange rate. Out-of-sample forecasting tests show that the backward elimination rule significantly beats the random walk for four out of five currencies in our sample. Further, the currency forecasts generate economically meaningful investment profits

Cracks in the crystal ball

The central issue of this paper is whether stock prices are exposed to total exchange rate movements – as traditionally measured – or to revisions in expected future exc

Dynamic Portfolio Strategies in the European Corporate Bond Market

In this paper, we propose a dynamic portfolio strategy for European corporate bonds based on a two-factor pricing model. We introduce a strategy in which we forecast both future factors as well as bonds' future exposure to these factor. Using a unique dataset that is representative for the universe of actively quoted European corporate bonds, we find that the strategy based on forecasted factors outperforms a number of benchmark strategies, whereas the strategy based on forecasted exposures does not. There is, however, ample time variation in the performance, related to market uncertainty and the level of market integration. At the individual bond level, we find signifcant outperformance over the benchmark

Expected Issuance Fees and Market Liquidity

This paper studies the impact of expected issuance fees on market liquidity in the Euro-area government bond market. We pose that investment banks have a dual role as primary dealer in the secondary market as well as competitor for lead manager in the primary market. Therefore, primary dealers have the incentive to increase liquidity due to competition for issuance fees. We find that the expected issuance fee is significantly related to market liquidity. Issuance fee driven liquidity is especially strong for countries with high funding needs, in periods of high uncertainty, and for bonds with low risk