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.
Specifically, our goal is to seamlessly help faculty set up and execute their research programs. This includes, but is not limited to:
All these activities help to facilitate and streamline faculty research, and that of the doctoral students working with them.
Numerous studies have documented that stock returns are negatively related to changes in interest rates, but there has been little corroborating research on the information in interest rate changes about the fundamentals that the stock market prices. The negative correlation is often attributed to changes in the discount rate, a denominator effect in a valuation model. However, there may also be a numerator effect on the expected payoffs that are discounted.
This paper studies the delegation as an alternative to communication. We show that a principal prefers to delegate control to a better informed agent rather than to communicate with this agent as long as the incentive conflict is not too large relative to the principal's uncertainty about the environment. We further identify cases in which the principal optimally delegates control to an "intermediary," and show that keeping a veto-right typically reduces the expected utility of the principal unless the incentive conflict is extreme.
This paper develops a dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers. Because output is stochastic (we allow for idiosyncratic and aggregate shocks), there may be default ex post. We compare equilibria with and without political intervention. Intervention takes the form of a moratorium and is decided by voting. When bad economic shocks are highly likely, state-contingent debt moratoria always improve ex post efficiency and may also improve ex ante efficiency. Moreover, the threat of moratoria enhances efficiency.
This paper examines characterizations of the dynamics for the first and second moments of the one-month interest rate, the 12-month excess bond return and exchange rates. The countries considered are the US, Germany, Japan, and the UK. Our tests are based on the implications of multi-country versions of the Cox et al. (1985) class of term structure models. Multi-country models are in several cases better able to explain the dynamics of the one-month interest rates and the 12-month excess bond returns than one-country models.
In their paper, Sydney Ludvigson, Charles Stendel, and Martin Lettau examine empirically the narrow but important issue of to what extent monetary policy affects consumer spending by altering the aggregate value of wealth. Here, I first comment on the paper itsef, then discuss implications for the broader question of whether the wealth effect is important (independent of monetary policy), and then suggest some avenues for future research.
In this paper we argue that allowing for uncertainty resolves the controversy over the importance of life-cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished.
In this paper we develop a measure of liquidity, price impact, which quantifies the change in a firm's stock price associated with its observed trading volume. For a large set of institutional trades we compare out-of-sample, characteristic-based estimates of price impact to actual price impacts.
We examine the valuation performance of a comprehensive list of value drivers and find that multiples derived from forward earnings explain stock prices remarkably well: pricing errors are within 15 percent of stock prices for about half our sample. In terms of relative performance, the following general rankings are observed consistently each year: forward earnings measures are followed by historical earnings measures, cash flow measures and book value of equity are tied for third, and sales performs the worst.
This paper evaluates the specification errors of several empirical asset pricing models that have been developed as potential improvements on the CAPM. We use the methodology of Hansen and Jagannathan (J. Finance 51 (1997) 3), and the test assets are the 25 Fama-French (J. Financial Econom. 52 (1997) 557) equity portfolios sorted on size and book-to-market ratio, and the Treasury bill. We allow the parameters of each model's pricing kernel to fluctuate with the business cycle. While we cannot reject correct pricing for Campbell's (J. Political Econom.
This paper examines the consequences of capital market liberalization, with special reference to its effects under different exchange rate regimes. Capital market liberalization has not lead to faster growth in developing countries, but has led to greater risks. It describes how International Monetary Fund policies have exacerbated the risks, as a result of the macro-economic response to crises, with bail-out packages that have intensified moral hazard problems. The paper provides a critique of the arguments for capital market liberalization.
Regulatory changes that appear comprehensive will have little impact on the functioning of a developing market if they fail to lead to foreign portfolio inflows. We specify a reduced-form model for a number of financial time series and search for a common, endogenous break in the data generating process. We also estimate a confidence interval for the break. Our endogenous break dates are accurately estimated but do not always correspond closely to dates of official capital market reforms.
This paper studies how to assign monitors to productive agents in order to generate signals about the agents' performance that are most useful from a contracting perspective. We show that if signals generated by the same monitor are negatively (positively) correlated, then the optimal monitoring assignment will be focused (dispersed). This holds because dispersed monitoring allows the firm to better utilize relative performance evaluation.
This paper studies how to assign monitors to productive agents in order to generate signals about the agents' performance that are most useful from a contracting perspective. We show that if signals generated by the same monitor are negatively (positively) correlated, then the optimal monitoring assignment will be focused (dispersed). This holds because dispersed monitoring allows the firm to better utilize relative performance evaluation.
The authors propose that cultural frame shifting — shifting between two culturally based interpretative lenses in response to cultural cues — is moderated by perceived compatibility (vs. opposition) between the two cultural orientations, or bicultural identity integration (BII).
This paper investigates the relationship between economic and social development. Contrary to the view of those who believe in the existence of a tradeoff between democracy and growth, the paper contends that consensus-building, open dialog and the promotion of an active civil society are key ingredients to long-term sustainable development. Development is a participatory process. "Best practices" or reforms that are imposed on a country through conditionality may very well fail to produce lasting change.
Much has been learned about emerging markets finance over the past 20 years. These markets have attracted a unique interdisciplinary interest that bridges both investment and corporate finance with international economics, development economics, law, demographics, and political science. Our paper focuses on the research areas that are ripe for exploration.
We study the interrelationship between capital flows, returns, dividend yields and world interest rates in 20 emerging markets. We estimate a vector autoregression with these variables to measure the degree to which lower interest rates contribute to increased capital flows and shocks in flows affect the cost of capital among other dynamic relations. We precede the VAR analysis by a detailed examination of endogenous break points in capital flows and the other variables. These structural breaks are traced to the liberalization of emerging equity markets.
Medicare, which provides health insurance to Americans over the age of 65 and to Americans living with disabilities, is one of the government's largest social programs. It accounts for 12 percent of federal on- and off-budget outlays, and in fiscal year 1999, $212 billion in Medicare benefits were paid. The largest shares of spending are for inpatient hospital services (48 percent) and physician services (27 percent). In thirty years, the number of Americans covered by Medicare will nearly double to 77 million, or 22 percent of the U.S. population.
The Great Divide in economic and financial development and the convergence in financial architecture among the successful countries raise fundamental questions about how financial development interacts with economic growth. Is it possible to engineer a development takeoff by creating a modern financial architecture from scratch? Or are financial institutions and markets a reflection of underlying conditions in the real sector? Or are both financial development and economic growth driven by some other underlying variables?
The authors urge that modern strategic theory is robust and provides a solid foundation for legal policy. The striking breakthrough of strategic theory was to establish that predatory pricing can be rational economic behavior.
This paper examines agency as a mechanism that can predict cultural differences in human motivation. In elaborating on the theory of self-construal (Markus and Kitayama, 1991) and drawing on past research on culture, we propose that people from cultures stressing independence are more personally agentic, whereas people from cultures stressing interdependence are more collectively agentic?which results in culturally contrasting differences in cognition and human motivation.
We examine the hypothesis that dividend taxes are capitalized into share prices by focusing on investors? implicit valuations of retained earnings versus paid-in equity. Retained earnings are distributable as taxable dividends, whereas paid-in equity is distributable as a tax-free return of capital. Consistent with dividend tax capitalization, firm-level results for the United States indicate that accumulated retained earnings are valued less per unit than contributed capital. In addition, differences in dividend tax rates across U.S.
We examine the hypothesis that dividend taxes are capitalized into share prices by focusing on investors? implicit valuations of retained earnings versus paid-in equity. Retained earnings are distributable as taxable dividends, whereas paid-in equity is distributable as a tax-free return of capital. Consistent with dividend tax capitalization, firm-level results for the United States indicate that accumulated retained earnings are valued less per unit than contributed capital. In addition, differences in dividend tax rates across U.S.
Many tendencies in social perceivers' judgments about individuals and groups can be integrated in terms of the premise that perceivers rely on implicit theories of agency acquired from cultural traditions. Whereas American culture primarily conceptualizes agency as a property of individual persons, other cultures conceptualize agency primarily in terms of collectives such as groups or nonhuman actors such as deities or fate.
Many tendencies in social perceivers' judgments about individuals and groups can be integrated in terms of the premise that perceivers rely on implicit theories of agency acquired from cultural traditions. Whereas American culture primarily conceptualizes agency as a property of individual persons, other cultures conceptualize agency primarily in terms of collectives such as groups or nonhuman actors such as deities or fate.
The seemingly quick global recovery from the Asian financial crisis and its limited effect on industrial countries produced far less sould searching about capitalism's basic principles than the Great Depression. The author argues that the global economic arrangements were inadequate in both instances and that the IMF requires serious reform to ensure a more stable global economic environment.
Shareholders of a Regional Bell Operating Company (RBOC) tend to live in the area which it serves, and an RBOC's customers tend to hold its shares rather than other RBOCs' equity. The geographic bias of the RBOC investors is closely related to the general tendency of households' portfolios to be concentrated, of employees' tendency to own their employers' stocks in their retirement accounts, and to the home country bias in the international arena.
The paper "Whence Reform?" by the Polish economists Marek Dabrowski, Stanislaw Gomulka, and Jacek Rostowski (DGR) is a welcome and revealing commentary on what is called the "Stiglitz Perspective." Our main response is gratitude at DGR's agreement with the main theses of "Whither Reform?" such as the critiques of voucher privatization and of the attempts to quickly install institutional reforms involving long agency chains. Our positions are not poles apart.
Most of the market microstructure literature focuses on the liquidity of individual securities, whereas much of the asset pricing literature examines the association between systematic risk and return. We document the presence of a systematic, time-varying component of liquidity. At the moment, neither the inventory nor the asymmetric information-based approach to liquidity explains the systematic, time-varying component of liquidity.
In the field of economics, perhaps the most important break with the past - one that leaves open huge areas for future work - lies in the economics of information. It is now recognized that information is imperfect, obtaining information can be costly, there are important asymmetries of information, and the extent of information asymmetries is affected by actions of firms and individuals.
The effects of justice and dispositional attribution on reactions to negative supervisory feedback were examined in two studies. Study 1 showed that criticism delivered with greater interpersonal fairness resulted in more favourable dispositional attributions about the supervisor, more acceptance of the feedback, and more favourable reactions towards the superior and the organization. The beneficial influence of just interpersonal treatment was general across various feedback contexts, although the magnitude varied.
Previous theories of financial market rationing focussed on a single market, either the credit or the equity market. An interesting question is whether credit and equity rationing are mutually compatible, and how they interact. We consider a model with two-dimensional asymmetric information, where entrepreneurs have private information about both the expected returns and the risk of their projects. We show that credit and equity rationing may occur individually or simultaneously.
In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation can induce prudent behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values.
This paper reviews briefly the arguments for capital market liberalization, and identifies their theoretical and empirical weaknesses. This provides the foundations for the argument for intervention in short-term capital flows. The paper concludes with a brief discussion of the various ways in which such interventions may be implemented.
When consumers' willingness-to-pay increases by a uniform amount, the change in the resulting monopoly price is generally indeterminate. Our analysis identifies sufficient conditions on the underlying demand curve which predict both the sign and the magnitude of the resulting price change.
The author argues that the Washington consensus is too narrow in its objectives - in its focus on GDP - and in what it sees as the instruments of development, the improvement of resource allocation, through trade liberalization, privatization and stabilization, that development needs to be seen as a transformation of society, a change in mindsets, and that workers and workers' institutions have to be at the center of the development process.
Technical analysis, also known as "charting," has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the highly subjective nature of technical analysis — the presence of geometric shapes in historical price charts is often in the eyes of the beholder.
Behavioral research on negotiation in recent years has been dominated by the decision-making research paradigm, which accords a relatively narrow role to emotions. Decision-making researchers have considered emotions primarily in terms of how an individual’s positive or negative affect impacts, and usually impedes, his or her information processing. Drawing on recent advances in psychology and other fields, we propose an alternative perspective that highlights more social and more functional aspects of emotion in negotiation.
This paper compares the performance of standard-cost with negotiated transfer pricing under asymmetric information. Negotiated transfer pricing generally achieves higher expected contribution margins, as this method tends to be more efficient in aggregating private information into a single transfer price. Standard-cost transfer pricing confers more bargaining power to the supplier and therefore generates better incentives for this division to undertake specific investments. The opposite holds for buyer investments.
We review progress in research attempting to model the influence of culture on judgments of justice. We review research on people’s reactions to resource allocation outcomes (the psychology of distributive justice), as well as on people’s reactions to the processes through which authorities make decisions (the psychology of procedural justice). We describe the progress from early work in which culture was equated with country differences to later work which focused on dimensions of values (e.g.
The authors present a new approach to culture and cognition, which focuses on the dynamics through which specific pieces of cultural knowledge (implicit theories) become operative in guiding the construction of meaning from a stimulus. Whether a construct comes to the fore in a perceiver's mind depends on the extent to which the construct is highly accessible (because of recent exposure).
We argue that a way culture influences decisions is through the reasons that individuals recruit when required to explain their choices. Specifically, we propose that cultures endow individuals with different rules or principles that provide guidance for making decisions, and a need to provide reasons activates such cultural knowledge. This proposition, representing a dynamic rather than dispositional view of cultural influence, is investigated in studies of consumer decisions that involve a trade-off between diverging attributes, such as low price and high quality.
We analyze a closely held corporation characterized by the absence of a resale market for its shares. We show that the founder of the firm can optimally choose an ownership structure with several large shareholders to force them to form coalitions to obtain control. By grouping member cash flows, a coalition internalizes to a larger extent the consequences of its actions and hence takes more efficient actions than would any of its individual members. The model has implications for the optimal bundling of cash flow and voting rights, and for the optimal number and size of shareholders.
We investigate how individuals learn from imagined might-have-been scenarios. We hypothesize that individuals are more likely to learn when they have responded to an event with upward-directed, self-focused counterfactual thoughts, and, additionally, that this learning process is inhibited by accountability to organizational superiors. Support for these hypotheses was obtained in two studies that assessed learning by aviation pilots from the experience of near accidents.
Rapid comprehensive change in the physical pattern of a city is a minor revolution — as is the transformation of 42nd Street and Times Square. Two decades ago the agenda for change posed two big questions: Is it possible for cities to reshape what the market is likely to deliver in an area? Is large-scale redevelopment even a plausible political objective, especially when aggressive actions such as condemnation are deemed a necessary part of the strategy?
The present research is motivated by an interest in why organizational decision makers so often respond to accidents with remedy plans that focus narrowly on correcting human error rather than more environment-focused plans or more encompassing plans. We investigated the role of counterfactual thinking in the decision-making tendency toward human-focused plans. Our experiments indicated that even in a domain where human-focused remedies were not otherwise appealing, many participants decided on human-focused remedies after they had generated an “if only” conjecture about the accident.
We study the economic consequences of alternative hedge accounting rules in terms of managerial hedging decisions and wealth effects for shareholders. The rules we consider include the "fair-value" and "cash-flow" hedge accounting methods prescribed by the recent SFAS No. 133. We illustrate that the accounting method used influences the manager's hedge decision. We show that under no-hedge accounting, the hedge choice is different from the optimal economic hedge the firm would make under symmetric and public information.
Low inventory, a crucial part of just-in-time (JIT) manufacturing systems, enjoys increasing application worldwide, yet the behavioral effects of such systems remain largely unexplored. Operations research (OR) models of low-inventory systems typically use a simplifying assumption that processing times of individual workers are independent random variables. This leads to predictions that low-inventory systems will exhibit production interruptions leading to lower productivity. Yet empirical results suggest that low-inventory systems do not exhibit the predicted productivity losses.
Several experiments provided evidence that negotiators make systematic errors in personality-trait attributions for the bargaining behaviors of their counterparts. Although basic negotiation behavior is highly determined by bargaining positions, negotiators primarily interpret their counterpart's behavior in terms of the counterpart's personality, such as his or her level of cooperativeness or agreeableness.
One possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less-developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially "unconstrained" buyers acquire "constrained" targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing.