Breaking the Cycle: How the News and Markets Created a Negative Feedback Loop in COVID-19
New research from CBS Professor Harry Mamaysky reveals how negativity in the news and markets can escalate a financial crisis.
New research from CBS Professor Harry Mamaysky reveals how negativity in the news and markets can escalate a financial crisis.
Adapted from “Global Value Chains in Developing Countries: A Relational Perspective from Coffee and Garments,” by Laura Boudreau of Columbia Business School, Julia Cajal Grossi of the Geneva Graduate Institute, and Rocco Macchiavello of the London School of Economics.
Adapted from “Online Advertising as Passive Search,” by Raluca M. Ursu of New York University Stern School of Business, Andrey Simonov of Columbia Business School, and Eunkyung An of New York University Stern School of Business.
This paper from Columbia Business School, “Meaning of Manual Labor Impedes Consumer Adoption of Autonomous Products,” explores marketing solutions to some consumers’ resistance towards autonomous products. The study was co-authored by Emanuel de Bellis of the University of St. Gallen, Gita Johar of Columbia Business School, and Nicola Poletti of Cada.
Co-authored by John B. Donaldson of Columbia Business School, “The Macroeconomics of Stakeholder Equilibria,” proposes a model for a purely private, mutually beneficial financial agreement between worker and firm that keeps decision-making in the hands of stockholders while improving the employment contract for employees.
At Columbia Business School, our faculty members are at the forefront of research in their respective fields, offering innovative ideas that directly impact the practice of business today. A quick glance at our publication on faculty research, CBS Insights, will give you a sense of the breadth and immediacy of the insight our professors provide.
As a student at the School, this will greatly enrich your education. In Columbia classrooms, you are at the cutting-edge of industry, studying the practices that others will later adopt and teach. As any business leader will tell you, in a competitive environment, being first puts you at a distinct advantage over your peers. Learn economic development from Ray Fisman, the Lambert Family Professor of Social Enterprise and a rising star in the field, or real estate from Chris Mayer, the Paul Milstein Professor of Real Estate, a renowned expert and frequent commentator on complex housing issues. This way, when you complete your degree, you'll be set up to succeed.
Columbia Business School in conjunction with the Office of the Dean provides its faculty, PhD students, and other research staff with resources and cutting edge tools and technology to help push the boundaries of business research.
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All these activities help to facilitate and streamline faculty research, and that of the doctoral students working with them.
We find that voters who associate themselves with the "winning team" in election, i.e., Leave voters in the 2016 UK Brexit vote and Trump voters in 2016 US presidential election, substantially increase their expectations for the stock market, but change their expectations of their household economic wellbeing only modestly. Respondents who associate themselves with the "losing team" are more varied in their responses, but the overall impact of the election outcome on this group is more muted.
Expectancies play an important and understudied role in influencing a negotiator's decision to be deceptive. Studies 1a–1e investigated the sources of negotiators' expectancies, finding evidence of projection and pessimism; negotiators consistently overestimated the prevalence of people who share their views on deception and assumed a sizable share of others embrace deceptive tactics. This phenomenon generalized beyond American samples to Chinese students (Study 1d) and Turkish adults (Study 1e).
Expectancies play an important and understudied role in influencing a negotiator's decision to be deceptive. Studies 1a–1e investigated the sources of negotiators' expectancies, finding evidence of projection and pessimism; negotiators consistently overestimated the prevalence of people who share their views on deception and assumed a sizable share of others embrace deceptive tactics. This phenomenon generalized beyond American samples to Chinese students (Study 1d) and Turkish adults (Study 1e).
This paper documents how life cycle wage growth varies across countries. We harmonize repeated cross-sectional surveys from a set of countries of all income levels and then measure how wages rise with potential experience. Our main finding is that experience-wage profiles are on average twice as steep in rich countries as in poor countries. In addition, more educated workers have steeper profiles than the less educated; this accounts for around one-third of cross-country differences in aggregate profiles.
We examine the effects of financial reporting regulation on firms' banking. Exploiting discontinuous public disclosure and auditing requirements assigned to otherwise similar small and medium-sized private firms, we document that financial reporting regulation reduces firms' reliance on concentrated and local bank relationships and increases banks' reliance on firms' financial reporting, consistent with a shift in firms' banking from relationship toward transactional approaches.
We provide a framework for identifying accounting numbers that indicate risk and expected return. Under specified accounting conditions for measuring earnings and book value, book-to-price (B/P) indicates expected returns, providing justification for B/P in asset pricing models. However, the framework also points to earnings-to-price (E/P) as a risk characteristic. Indeed, E/P, rather than B/P, is the relevant characteristic when there is no expected earnings growth, but the weight shifts to B/P with growth.
Geographic price discrimination is generally considered beneficial to firm profitability. Firms can extract higher rents by varying prices across markets to match consumers' preferences. This paper empirically demonstrates, however, that a firm may instead prefer a national pricing policy that fixes prices across geographic markets, foregoing the opportunity to customize prices. Under appropriate conditions, a national pricing policy helps avoid intense local competition due to targeted prices.
We examine the cost-effectiveness, from the shareholders' perspective, of the accounting standards issued by the FASB during 1973-2009. We evaluate (i) the stock market reactions of firms affected by the standards surrounding events that changed the standard's probability of issuance; and (ii) whether the market reactions are related, in the cross-section, to agency problems, information asymmetry, proprietary costs, contracting costs, and changes in estimation risk.
We document a large decrease in earnings inequality in Brazil between 1996 and 2012. Using administrative linked employer-employee data, we fit high-dimensional worker and firm fixed effects models to understand the sources of this decrease. Firm effects account for 40 percent of the total decrease and worker effects for 29 percent. Changes in observable worker and firm characteristics contributed little to these trends. Instead, the decrease is primarily due to a compression of returns to these characteristics, particularly a declining firm productivity pay premium.
Value stocks earn higher returns than growth stocks on average, but a “value” position can turn against the investor. Fundamental analysis can explain this so-called value trap: The investor may be buying earnings growth that is risky. Both the earnings-to-price ratio (E/P) and the book-to-price ratio (B/P) come into play. E/P indicates expected earnings growth, but price in that ratio also discounts for the risk to that growth; B/P indicates that risk. A striking finding emerges: For a given E/P, a high B/P (“value”) indicates higher expected earnings growth--but growth that is risky.
This pilot study estimates the effects of family structure on age of diagnosis, with the goal of identifying factors that may accelerate or delay diagnosis. We conducted an online survey with 477 parents of children with autism. In addition, we carried out novel, follow-up surveys of 196 "friends and family," who were referred by parents. Family structure and frequency of interactions with family members have significant effects on age of diagnosis (p < 0.05).
Prior research has found inconsistent effects of diversity on group performance. The present research identifies hormonal factors as a critical moderator of the diversity-performance connection. Integrating the diversity, status, and hormone literatures, we predicted that groups collectively low in testosterone, which orients individuals less toward status competitions and more toward cooperation, would excel with greater group diversity. In contrast, groups collectively high in testosterone, which is associated with a heightened status drive, would be derailed by diversity.
This paper assesses cross-country variation in life-cycle human capital accumulation, using new evidence from US immigrants. The returns to experience accumulated in an immigrant's birth country before migrating are positively correlated with birth-country GDP per capita. To understand this fact, we build a model of life-cycle human capital accumulation that features three potential theories: differential human capital accumulation, differential selection, and differential skill loss.
The rigidity of mortgage contracts and a variety of frictions in the design of the market and the intermediation sector hindered efforts to restructure or refinance household debt in the aftermath of the financial crisis. In this paper, we focus on understanding the design and implementation challenges of ex ante and ex post debt relief solutions that are aimed at a more efficient sharing of aggregate risk between borrowers and lenders.
The dominant perspective in society is that stress has negative consequences, and not surprisingly, the vast majority of interventions for coping with stress focus on reducing the frequency or severity of stressors. However, the effectiveness of stress attenuation is limited because it is often not possible to avoid stressors, and avoiding or minimizing stress can lead individuals to miss opportunities for performance and growth. Thus, during stressful situations, a more efficacious approach is to optimize stress responses (i.e., promote adaptive, approach-motivated responses).
This paper provides quasi-experimental evidence on the impact of paid leave legislation on fathers' leave-taking, as well as on the division of leave between mothers and fathers in dual-earner households. Using difference-in-difference and difference-in-difference-in-difference designs, we study California's Paid Family Leave (CA-PFL) program, which is the first source of government-provided paid parental leave available to fathers in the United States.
We examine the Internet’s impact on the cross-border distribution of cultural goods and assess its implications for cultural policy and cultural diversity. We present a stylized model of a two-country economy where governments are endowed with political preferences over the consumption of domestic content and enact import barriers and subsidies to protect it. We introduce peer-to-peer file sharing as a distinct distribution channel enabled by the Internet that provides access to all media products at a low cost. We report two main findings.
Exploiting variation in the timing of resets of adjustable rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50%) induces a significant increase in car purchases (up to 35%). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults and an increase in house prices, car purchases, and employment.
The article shows that outside ownership of media moves in stages -- from media properties as the mouthpiece for personal and business interests, to a second stage of conglomerates seeking economic “synergies” of performance, to a third stage dominated by financial portfolio diversification. These phases of outside media ownership correspond to the stages of economic development in that country.The article finds that in rich countries, the ownership of media by industrial companies as a way to create political influence has been declining.
We examine the relation between shareholder activism and voluntary disclosure. An important consequence of voluntary disclosure is less adverse selection in the capital markets. One class of traders that finds less adverse selection unprofitable is activist investors who target mispriced firms whose valuations they can improve. Consistent with this idea, we find that managers issue earnings and sales forecasts more frequently when their firm is more at risk of attack by activist investors, and that these additional disclosures reduce the likelihood of becoming an activist's target.
Past research paints a mixed picture of rationales in negotiations: Some findings suggest rationales might help, whereas others suggest they may have little effect or backfire. Here, we distinguish between two kinds of rationales buyers commonly employ — constraint rationales (referring to one's own limited resources) and disparagement rationales (involving critiques of the negotiated object) — and demonstrate their divergent effects.
Whether in everyday disagreements, bargaining episodes, or high-stakes disputes, people typically see a spectrum of possible responses to dealing with differences with others, ranging from avoidance and accommodation to competition and aggression. We believe people judge their own and others' behaviors along this dimension, which we call interpersonal assertiveness, reflecting the degree to which someone stands up and speaks out for their own positions when they are faced with someone else who does not want the same outcomes.
To align employees' interests with the firm's goals, employers often use performance-based pay, but designing such a compensation plan is challenging because performance is typically multifaceted. For example, a sales employee should be incentivized to sell the company's product, but a focus on current sales without rewarding the salespeople according to the quality of the product and/or customer service may result in fewer future sales.
This paper proposes an institutional solution that can help unlock the flow of low yielding long-term savings towards high-return infrastructure investments. The solution is to transform public–private partnerships (PPPs) in infrastructure as well as the classic model of multilateral development banks. Instead of thinking of PPPs as bilateral contracts between a private concession operator and a government agency, we argue that they should be conceived as partnerships that also involve a development bank and long-term institutional investors as partners.
This paper proposes an institutional solution that can help unlock the flow of low yielding long-term savings towards high-return infrastructure investments. The solution is to transform public–private partnerships (PPPs) in infrastructure as well as the classic model of multilateral development banks. Instead of thinking of PPPs as bilateral contracts between a private concession operator and a government agency, we argue that they should be conceived as partnerships that also involve a development bank and long-term institutional investors as partners.
We examine the international equity allocations of over 3 million individuals in 296 401(k) plans over the 2006-2011 period. These allocations show enormous cross-individual variation, ranging between zero and over 75%, as well as an upward trend that is only partially accounted for by the slight decrease in importance of the US market relative to the world market. International equity allocations also display strong cohort effects, with younger cohorts investing more internationally than older ones, but also each cohort investing more internationally over time.
Whereas past research has focused on the downsides of task switching, the present research uncovers a potential upside: increased creativity. In two experiments, we show that task switching can enhance two principal forms of creativity — divergent thinking (Study 1) and convergent thinking (Study 2) — in part because temporarily setting a task aside reduces cognitive fixation.
Whereas past research has focused on the downsides of task switching, the present research uncovers a potential upside: increased creativity. In two experiments, we show that task switching can enhance two principal forms of creativity — divergent thinking (Study 1) and convergent thinking (Study 2) — in part because temporarily setting a task aside reduces cognitive fixation.
Using proprietary data on millions of trades by retail investors, we provide the first large-scale evidence that retail short selling predicts negative stock returns. A portfolio that mimics weekly retail shorting earns an annualized risk-adjusted return of 9%. The predictive ability of retail short selling lasts for one year and is not subsumed by institutional short selling. In contrast to institutional shorting, retail shorting best predicts returns in small stocks and those that are heavily bought by other retail investors.
The present research considered what leads perceivers to evaluate someone as a good or poor judge of people. In general, we found a substantial role for agreement: perceivers evaluated another person as a good judge when he or she agreed with their perception of someone's characteristics. Importantly, the effect of agreement depended on who this " someone" was. We found that perceivers' evaluation of another individual as a good judge was more heavily shaped by agreement about their own characteristics than by agreement about a third-party target's characteristics.
The present research considered what leads perceivers to evaluate someone as a good or poor judge of people. In general, we found a substantial role for agreement: perceivers evaluated another person as a good judge when he or she agreed with their perception of someone's characteristics. Importantly, the effect of agreement depended on who this " someone" was. We found that perceivers' evaluation of another individual as a good judge was more heavily shaped by agreement about their own characteristics than by agreement about a third-party target's characteristics.
We consider the implications for optimal fiscal policy when taxes are non-distortionary and households are heterogeneous and borrowing constrained. The main result is that optimal policy keeps some households borrowing constrained in order to reduce interest rates on government debt.
Recent bank regulations have imposed large compliance costs on banks of all sizes, and have increased the costs of borrowing to both consumers and companies. But in this summary of his recent book, the author argues that the problems with banking system regulation go well beyond the excessive costs. Indeed, Dodd-Frank and other post-crisis regulatory reforms have failed to address the major shortcomings that produced the crisis of 2007–2009. Most importantly, excessive housing finance risk was not dealt with adequately, and is already on the rise again.
We study an international law firm that changed its compensation plan for team leaders to address a multitasking problem: team leaders were focusing their effort on billable hours and not spending sufficient time on "leadership" activities to build the firm. Compensation was changed to provide greater incentives for the leadership activities and weaker incentives for billable hours. The effect of this change on the task allocation of the firm's team leaders is large and robust; team leaders increase their non-billable hours and shift billable hours to team members.
We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the compensation risk borne by the managers. Accounting for this investment/risk link overturns key findings from prior incomplete contracting studies.
This article develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and cannot commit to fiscal policy. If the government can perfectly commit, it fully insulates the economy against government spending shocks by purchasing short-term assets and issuing long-term debt. These positions are quantitatively very large relative to GDP and do not need to be actively managed by the government. Our main result is that these conclusions are not robust to the introduction of lack of commitment.
Background and objectives research suggests that altering situation-specific evaluations of stress as challenging versus threatening can improve responses to stress. The aim of the current study was to explore whether cognitive, physiological and affective stress responses can be altered independent of situation-specific evaluations by changing individuals mindsets about the nature of stress in general. Using a design, we experimentally manipulated stress mindset using multi-media film clips orienting participants to either the enhancing or debilitating nature of stress.
We introduce a tractable dynamic monitoring technology into a continuous-time moral hazard problem and study the optimal long-term contract between principal and agent. Monitoring adds value by allowing the principal to reduce the intensity of performance-based incentives, reducing the likelihood of costly termination. We present a novel characterization of optimal dynamic incentive provision when performance-based incentives may decline continuously to zero. Termination happens in equilibrium only if its costs are relatively low.
In a single commodity setting with changing tastes, an individual's consumption plan can be obtained using naive or sophisticated choice. We provide two sufficient conditions for when (i) the solutions are unique and agree and (ii) the common plan is representable by a non-changing tastes utility. Because the solution is not revised over time, the plan and associated preferences are referred to as being effectively consistent. Afriat-style revealed preference tests are derived.
This paper studies optimal communication flows in organizations. A production process can be coordinated ex ante, by letting agents stick to a prespecified plan of action. Alternatively, agents may adapt to task-specific shocks, in which case tasks must be coordinated ex post, using communication. When attention is scarce, an optimal organization coordinates only a few tasks ex post. Those tasks are higher performing, more adaptive to the environment, and influential. Hence, scarce attention requires setting priorities, not just local optimization.
This paper studies optimal communication flows in organizations. A production process can be coordinated ex ante, by letting agents stick to a prespecified plan of action. Alternatively, agents may adapt to task-specific shocks, in which case tasks must be coordinated ex post, using communication. When attention is scarce, an optimal organization coordinates only a few tasks ex post. Those tasks are higher performing, more adaptive to the environment, and influential. Hence, scarce attention requires setting priorities, not just local optimization.
Building on intuition from the dynamic asset pricing literature, we uncover unobserved risk aversion and fundamental uncertainty from the observed time series of the variance premium and the credit spread while controlling for the conditional variance, expectations about the macroeconomic outlook, and interest rates. We apply this methodology to monthly data from both Germany and the US. We find that the variance premium contains a substantial amount of information about risk aversion whereas the credit spread has a lot to say about uncertainty.
We propose a model where investors can choose to acquire costly information that allows them to identify good assets and purchase them in opaque over the counter (OTC) markets. Uninformed investors trade on an organized exchange and only have access to an asset pool that has been (partially) cream-skimmed by informed dealers. We show that when the quality composition of assets for sale is fixed there is always too much information acquisition and cream skimming by dealers in equilibrium.
We propose a model where investors can choose to acquire costly information that allows them to identify good assets and purchase them in opaque over the counter (OTC) markets. Uninformed investors trade on an organized exchange and only have access to an asset pool that has been (partially) cream-skimmed by informed dealers. We show that when the quality composition of assets for sale is fixed there is always too much information acquisition and cream skimming by dealers in equilibrium.
Individuals that consume different baskets of goods are differentially affected by relative price changes caused by international trade. We develop a methodology to measure the unequal gains from trade across consumers within countries. The approach requires data on aggregate expenditures and parameters estimated from a non-homothetic gravity equation. We find that trade typically favors the poor, who concentrate spending in more traded sectors.
This paper examines how prices, markups and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi-product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity-based productivity, and then compute marginal costs by dividing observed prices by the estimated markups.
Researchers have debated whether a person’s behavior can be predicted from his or her face. In particular, it is unclear whether people’s trustworthiness can be predicted from their facial appearance. In the present study, we implemented conceptual and methodological advances in this area of inquiry, taking a new approach to capturing trustworthy behavior and measuring targets’ own self-expectations as a mediator between consensual appearance-based judgments and the trustworthiness of targets’ behavior.
Researchers have debated whether a person’s behavior can be predicted from his or her face. In particular, it is unclear whether people’s trustworthiness can be predicted from their facial appearance. In the present study, we implemented conceptual and methodological advances in this area of inquiry, taking a new approach to capturing trustworthy behavior and measuring targets’ own self-expectations as a mediator between consensual appearance-based judgments and the trustworthiness of targets’ behavior.
In the last two decades, organized retailing has transformed the retailing landscape in emerging economies, where unorganized retailing has traditionally been dominant. In this paper, we build a theoretical model of unorganized and organized retailing in emerging economies by carefully modeling key characteristics of the retailing environment, the retailers, the consumers, and product categories.
In this essay, we criticize how the performativity thesis, as described and exemplified in Do Economists Make Markets, has focused primarily on the field of economics generally and business school–based financial economics consequently. By doing so the performativity literature has ignored whether, when, and how financial economics outperforms, or might be outperformed by, other business school sciences, such as management.