We explore the dynamics of informed trading around corporate announcements of merger bids, dividend initiations, SEOs, and quarterly earnings by calculating daily posterior probabilities of informed ...buying and selling. We find evidence of informed trading before the announcements and a significant part of the news in announcements is impounded in stock prices before the announcements by pre-event informed trading. We also find evidence of informed trading after the announcements. Most strikingly, the probability of informed trading after merger bids predicts the probability of the bid being withdrawn or met with a competing bid. For other announcements, post-announcement informed-trading probabilities predict subsequent returns.
In proportional representation (PR) systems, political power is typically shared across several political parties. Many parties are small and focused on specific policies, such as environmental ...policy and immigration. Do these small parties matter for policy? I provide the first systematic evidence for this by developing the first regression discontinuity design tailored specifically for PR systems. With this method, which can be applied in all countries with PR systems, I estimate the causal effect of party representation on immigration policy, environmental policy and tax policy using data on Swedish municipalities. The results show that party representation has a large effect on the first two policies, but not on the tax policy.
A key policy question is whether the benefits of additional medical expenditures exceed their costs. We propose a new approach for estimating marginal returns to medical spending based on variation ...in medical inputs generated by diagnostic thresholds. Specifically, we combine regression discontinuity estimates that compare health outcomes and medical treatment provision for newborns on either side of the very low birth weight threshold at 1,500 grams. First, using data on the census of U.S. births in available years from 1983 to 2002, we find that newborns with birth weights just below 1,500 grams have lower one-year mortality rates than do newborns with birth weights just above this cutoff, even though mortality risk tends to decrease with birth weight. One-year mortality falls by approximately one percentage point as birth weight crosses 1,500 grams from above, which is large relative to mean infant mortality of 5.5% just above 1,500 grams. Second, using hospital discharge records for births in five states in available years from 1991 to 2006, we find that newborns with birth weights just below 1,500 grams have discontinuously higher charges and frequencies of specific medical inputs. Hospital costs increase by approximately $4,000 as birth weight crosses 1,500 grams from above, relative to mean hospital costs of $40,000 just above 1,500 grams. Under an assumption that observed medical spending fully captures the impact of the “very low birth weight” designation on mortality, our estimates suggest that the cost of saving a statistical life of a newborn with birth weight near 1,500 grams is on the order of $550,000 in 2006 dollars.
China's telecommunications industry has seen revolutionary transformation and growth over the past three decades. Chinese Internet users number nearly 150 million, and the PRC expects to quickly pass ...the US in total numbers of connected citizens. The number of mobile and fixed-line telephone users soared from a mere 2 million in 1980 to a total of nearly 800 million in 2007. China has been the most successful developing nation in history for spreading telecommunications access at an unparalleled rapid pace. This book tells how China conducted its remarkable "telecommunications revolution". It examines both corporate and government policy to get citizens connected to both voice and data networks, looks at the potential challenges to the one-party government when citizens get this access, and considers the new opportunities for networking now offered to the people of one of the world's fastest growing economies. The book is based on the author's fieldwork conducted in several Chinese cities, as well as extensive archival research. It focuses on key issues such as building and running the country's Internet, mobile phone company rivalry, foreign investment in the sector, and telecommunications in China's vibrant city of Shanghai. It also considers the country's internal "digital divide", and questions how equitable the telecommunications revolution has been. Finally, it examines the ways the PRC's entry to the World Trade Organization will shape the future course of telecommunications growth. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780199233748/toc.html
The study examines the relationship between foreign direct investment (FDI), financial development, and economic growth in a panel of 95 developed and developing countries from 1983 to 2006. The ...study moves away from the traditional cross-sectional analysis, and focuses on more direct evidence of the channels via which FDI might help or retard economic growth. Using generalized method of moment (GMM) panel data analysis, we find strong evidence of a positive relationship between FDI inflows into a country and its economic performance. We also find evidence that domestic financial system is a significant prerequisite for FDI to have a positive effect on economic growth. Policy implications are clear. Effort should be made to reform and improve the development of domestic financial system in order to benefit more from the presence of FDI.
An important issue in global corporate risk management is whether the multinationality of a firm matters in terms of its effect on exchange risk exposure. In this paper, we examine the exchange risk ...exposure of US firms during 1983–2006, comparing multinational and non-multinational firms and focusing on the role of operational hedging. Since MNCs and non-multinationals differ in size and other characteristics, we construct matched samples of MNCs and non-multinationals based on the propensity score method. We find that the multinationality in fact matters for a firm’s exchange exposure but not in the way usually presumed – the exchange risk exposures are actually smaller and less significant for MNCs than non-multinationals. The results are robust with respect to different samples and model specifications. There is evidence that operational hedging decreases a firm’s exchange risk exposure and increases its stock returns. The effective deployment of operational risk management strategies provides one reason why MNCs may have insignificant exchange risk exposure estimates.
Good economic management depends on understanding shocks from monetary policy, fiscal policy and other sources affecting the economy and their subsequent interactions. This paper presents a new ...methodology to disentangle such shocks in a structural VAR framework. The method combines identification via sign restrictions, cointegration and traditional exclusion restrictions within a system which explicitly models stationary and non-stationary variables and accounts for both permanent and temporary shocks. The usefulness of the approach is demonstrated on a small open economy where policy makers are actively considering the interaction between monetary and fiscal policies.
An ongoing controversy in the literature on the economics of higher education centers on whether the success of a school’s athletic program affects alumni donations. This paper uses a unique data set ...to investigate this issue. The data contain detailed information about donations made by alumni of a selective research university as well as a variety of their economic and demographic characteristics. One important question is how to characterize the success of an athletic program. We focus not only on the performance of the most visible teams, football and basketball, but also on the success of the team on which he or she played as an undergraduate.
One of our key findings is that the impact of athletic success on donations differs for men and women. When a male graduate’s former team wins its conference championship, his donations for general purposes increase by about 7% and his donations to the athletic program increase by about the same percentage. Football and basketball records generally have small and statistically insignificant effects; in some specifications, a winning basketball season reduces donations. For women there is no statistically discernible effect of a former team’s success on current giving; as is the case for men, the impacts of football and basketball, while statistically significant in some specifications, are not important in magnitude. Another novel result is that for males, varsity athletes whose teams were successful when they were undergraduates subsequently make larger donations to the athletic program. For example, if a male alumnus’s team won its conference championship during his senior year, his subsequent giving to the athletic program is about 8% a year higher,
ceteris paribus.
We examine the relation of time-varying idiosyncratic risk and momentum returns in REITs using a GARCH-in-mean model and incorporate liquidity risk in the asset pricing model. This is important ...because illiquidity may be more severe for REITs due to the nature of their underlying assets. We find that momentum returns display asymmetric volatility, i.e., momentum returns are higher when volatility is higher. Additionally, we find evidence that REITs with lowest past returns (losers) have higher idiosyncratic risks than those with highest past returns (winners) and that investors require a lower risk premium for holding losers’ idiosyncratic risks. Therefore, although losers have higher levels of idiosyncratic risks, their low risk premia cause low returns, which contribute to momentum. Lastly, we find a positive relation between REITs’ momentum return and turnover.
We examine the reputational herding hypothesis and provide evidence that institutional investors' career concerns contribute to herding behavior. Our analysis is based on the intuition that stronger ...(weaker) career concerns lead to a higher (lower) propensity to herd in down (up) markets. We find that institutional herding is, on average, 40% greater in down markets than in up markets. Moreover, we find that mutual funds and independent advisors follow “same type” institutions 43% more in down markets than in to up markets. Our evidence suggests that institutional herding is driven, at least in part, by institutional managers' reputational concerns.
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