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.
Companies are collecting increasing amounts of information about their customers. This effort is based on the assumption that more information is better and that this information can be leveraged to predict customers' behavior in a variety of situations and product categories. For example, information about a customer's purchase behavior in one category can be helpful in predicting his potential behavior in a related category, which in turn could help a firm in its cross-selling efforts.
The authors propose that the revenue premium a brand generates compared with that of a private label product is a simple, objective, and managerially useful product-market measure of brand equity. The authors provide the conceptual basis for the measure, compute it for brands in several packaged goods categories, and test its validity. The empirical analysis shows that the measure is reliable and reflects real changes in brand health over time.
Three experiments investigated the hypothesis that power increases an action orientation in the power holder, even in contexts where power is not directly experienced. In Experiment 1, participants who possessed structural power in a group task were more likely to take a card in a simulated game of blackjack than those who lacked power. In Experiment 2, participants primed with high power were more likely to act against an annoying stimulus (a fan) in the environment, suggesting that the experience of power leads to the performance of goal-directed behavior.
We examine two factors that explain air traffic congestion: network benefits due to hubbing and congestion externalities. While both factors impact congestion, we find that the hubbing effect dominates empirically. Hub carriers incur most of the additional travel time from hubbing, primarily because they cluster their flights in short time spans to provide passengers as many potential connections as possible with a minimum of waiting time. Non-hub flights at the same hub airports operate with minimal additional travel time.
Environmental regulation in the United States has undergone a slow evolution from command and control strategies towards market-based regulations. One such innovation is the Toxics Release Inventory (TRI), a regulation that requires polluting firms to publicly disclose information about their toxic emissions. The basic tenet of this regulation is that it corrects for informational asymmetries between polluters and households, allowing communities to pressure polluters to decrease their emissions.
While today it is recognized that globalization may have adverse effects on particular groups, in this essay, I want to set forth some of the reasons why globalization, when not managed well, may actually be adverse to overall economic growth, and the ability of countries to take advantage of the advances associated with the New Economy. Not just the poor may suffer. There are several channels through which the adverse effects may run.
This paper characterizes the arbitrage-free dynamics of interest rates, in the presence of both jumps and diffusion, when the term structure is modeled through simple forward rates (i.e., through discretely compounded forward rates evolving continuously in time) or forward swap rates.
This article provides the first comprehensive econometric analysis of the causes of bank distress during the Depression. We assemble bank-level data for virtually all Fed member banks, and combine those data with county-level, state-level, and national-level economic characteristics to capture cross-sectional and inter-temporal variation in the determinants of bank failure.
In terms of housing issues, the primary public policy focus of economists has been the affordability of homes, mortgage availability, land-use regulation, and rent control. Studies of land-use regulation focus on the effects of regulation on the price of owner-occupied housing. Work on low-income housing has concerned itself more with issues of measurement and the debate over supply-side versus demand-side subsidies.
This study investigates whether banks manage the disclosed fair value of their major asset, the loan portfolio. Using two cross-section samples, I find evidence that suggests banks manage the fair value of loans. The estimated extent of overstatement of loans' fair value is negatively related to regulatory capital, asset growth, liquidity and the gross book value of loans, and positively related to the change in the rate of credit losses.
This paper examines continuous-time stochastic volatility models incorporating jumps in returns and volatility. We develop a likelihood-based estimation strategy and provide estimates of parameters, spot volatility, jump times, and jump sizes using S&P 500 and Nasdaq 100 index returns. Estimates of jump times, jump sizes, and volatility are particularly useful for identifying the effects of these factors during periods of market stress, such as those in 1987, 1997, and 1998. Using formal and informal diagnostics, we find strong evidence for jumps in volatility and jumps in returns.
Customized communications have the potential to reduce information overload and aid customer decisions, and the highly relevant products that result from customization can form the cornerstone of enduring customer relationships. In spite of such potential benefits, few models exist in the marketing literature to exploit the Internet's unique ability to design communications or marketing programs at the individual level. We develop a statistical and optimization approach for customization of information on the Internet.
We hypothesized that the activation of a counterfactual mind-set minimizes decision errors resulting from the failure of groups to seek disconfirming information to test an initial hypothesis. To test this hypothesis, we conducted two experiments examining the decision making processes of groups. The task for both experiments was modeled after the Space Shuttle Challenger disaster, and groups had to actively seek disconfirmatory information to make a correct decision.
We study a principal-agent model of moral hazard in which the principal has an abandonment option. The option to abandon a project midstream limits a firm's downside risk. From a consumption (production) perspective, the option is clearly beneficial. However, from an incentive perspective, the option can be costly. Removing the lower tail of the project's underlying cash flow distribution also eliminates the information it contains about an agent's (unobservable) productive input.
Many telephone call centers that experience cyclic and random customer demand adjust their staffing over the day in an attempt to provide a consistent target level of customer service. The standard and widely used staffing method, which we call the stationary independent period by period (SIPP) approach, divides the workday into planning periods and uses a series of stationary independent Erlang-c queuing models—one for each planning period—to estimate minimum staffing needs.
Many telephone call centers that experience cyclic and random customer demand adjust their staffing over the day in an attempt to provide a consistent target level of customer service. The standard and widely used staffing method, which we call the stationary independent period by period (SIPP) approach, divides the workday into planning periods and uses a series of stationary independent Erlang-c queuing models—one for each planning period—to estimate minimum staffing needs.
We show that network advantages constitute an important intangible asset that goes unrecognized in the financial statements. For a sample of e-commerce firms, we find that network advantages created by Web site traffic have substantial explanatory power for stock prices over and above traditional summary accounting measures such as earnings and book value of equity. Also, network advantages are positively associated with one-year-ahead and two-year-ahead earnings forecasts provided by equity analysis.
This paper develops formulas for pricing caps and swaptions in LIBOR market models with jumps. The arbitrage-free dynamics of this class of models were characterized in Glasserman and Kou [9] in a framework allowing for very general jump processes. For computational purposes, it is convenient to model jump times as Poisson processes; however, the Poisson property is not preserved under the changes of measure commonly used to derive prices in the LIBOR market model framework.
The purpose of this paper is to understand buyer/seller adoption dynamics in independent, buyer-side B2B exchanges. In a stylized model, we assume that the main role of the exchange is to reduce search costs for buyers. Buyers and sellers enter or exit the exchange based on the relative economic surplus (loss) they receive inside vs. outside the exchange. We contrast two situations: one where participants' switching cost to join the institution is negligible and another, in which it is significant.
Abstract: In many of the numerical methods for pricing American options based on the dynamic programming approach, the most computationally intensive part can be formulated as the summation of Gaussians. Though this operation usually requires O(NN') work when there are N' summations to compute and the number of terms appearing in each summation is N, we can reduce the amount of work to O(N+N') by using a technique called the fast Gauss transform.
We estimate the relation between stock option (ESO) grants to the top five executives and future earnings to examine whether incentive alignment or rent extraction by top managers explains option granting behavior. The future operating income associated with a dollar of Black-Scholes value of an ESO grant is $3.71. To understand the source of these positive payoffs, we parse out ESO grant values into components predicted by economic determinants of option grants, governance quality, and a residual grant value.
The push for increased transparency in financial reporting and corporate governance serves shareholders only up to a point. The problem of assessing the value of transparency to shareholders is subtle because both the level and pattern of earnings can convey information. Even when earnings management conceals information, it can be beneficial to shareholders. Distinguishing between ex ante and ex post efficiency underscores the advantages of achieving a balance between transparency and privacy in corporations.
This paper is concerned with dynamic control of stochastic processing networks. Specifically, it follows the so called heavy traffic approach, where a Brownian approximating model is formulated, an associated Brownian optimal control problem is solved, the solution of which is then used to define an implementable policy for the original system. A major challenge is the step of policy translation from the Brownian to the discrete network. This paper addresses this problem by defining a general and easily implementable family of continuous-review tracking policies.
Something is wrong with the global financial system. One might think the system would shift money from rich countries, where capital is in abundance, to those where it is scarce, while transferring risk from poor countries to rich ones, which are most able to bear it. A well-functioning global financial system would provide money to countries in their times of need, thereby contributing to global economic stability.
This paper analyzes the issue costs and initial pricing of bonds in the international market. In particular, we investigate the determinants of three components of issue costs: underwriter fee, underwriter spread (the difference between the offering price and the guaranteed price to the issuer), and underpricing (the difference between the market price and the offering price). Total underwriter compensation increases with the bonds’ credit risk and maturity, but it is insignificantly related to issue size.
This paper studies the capital budgeting process in a setting where a manager is privately informed about the profitability of an investment project and enjoys nonpecuniary benefits of control ("empire benefits"). I characterize the optimal required rate of return and show that a delegation scheme with residual income-based compensation can replicate the benchmark performance achieved under centralization. The main result of the paper is that the optimal capital charge rate for computing residual income always exceeds the required rate of return as a result of empire benefits.
Much has been said about the failing policies of the International Monetary Fund (IMF). In this essay, I attempt to explain why the IMF has pursued policies that in many cases not only failed to promote the stated objectives of enhancing growth and stability, but were probably counterproductive and even flew in the face of a considerable body of theoretical and empirical work that suggested these policies would be counterproductive. I argue that the root of the problem lies in the IMF's system of governance.
The article examines the price implications of corporate disclosures as well as other information releases. Corporate disclosures are an important source of information for investors. For dividend announcements, the price implications appear straightforward: price is the present value of expected future dividends. Hence, to the extent that future dividends are related to current dividends, dividend changes should trigger price responses. Other corporate disclosures, such as earnings, may also be viewed as proxies for future dividends.
Financial economists have debated the impact of dividend taxes on firm valuation for decades, but existing empirical evidence is mixed. In this study, we avoid certain complications inherent in previous empirical work by exploiting institutional characteristics of Real Estate Investment Trusts (REITs). For REITs, dividend policy is largely non-discretionary, share repurchases are not tax advantaged relative to dividends, and the market value of a firm's assets is relatively transparent to investors.
Although leading indicators are becoming increasingly important for equity valuation, disclosures of such indicators suffer from the absence of GAAP related guidance on content and presentation. We explicitly examine (i) whether one leading indicator — order backlog — predicts future earnings, and (ii) whether market participants correctly incorporate such predictive ability in determining share prices.
Emerging markets have long posed a challenge for finance. Standard models are often ill suited to deal with the specific circumstances arising in these markets. However, the interest in emerging markets has provided impetus for both the adaptation of current models to new circumstances in these markets and the development of new models. The model of market integration and segmentation is our starting point. Next, we emphasize the distinction between market liberalization and integration. We explore the financial effects of market integration as well as the impact on the real economy.
We propose and test new adaptive question design and estimation algorithms for partial-profile conjoint analysis. Polyhedral question design focuses questions to reduce a feasible set of parameters as rapidly as possible. Analytic center estimation uses a centrality criterion based on consistency with respondents' answers. Both algorithms run with no noticeable delay between questions. We evaluate the proposed methods relative to established benchmarks for question design (random selection, D-efficient designs, adaptive conjoint analysis) and estimation (hierarchical Bayes).
Four studies explored behavioral forecasting and the effect of competitive expectations in the context of negotiations. Study 1 examined negotiators' forecasts of how they would behave when faced with a very competitive versus a less competitive opponent and found that negotiators believed they would become more competitive.
In this research, we tested the effects of chronic and temporary sources of accessibility on impression formation. Although some research suggests that chronicity amplifies temporary effects because of greater susceptibility to external primes, other research suggests that chronicity masks temporary effects because of redundance. We demonstrate in a thought listing study that in the domain of gender stereotypes, trait stereotypes may be routinely applied by those with a medium or high tendency to stereotype women, making external primes redundant.
This essay concerns the process of globalization, the integration of economies around the world which has put new demands on nation-states at the very same time that, in many ways, it has reduced their capacities to deal with those demands. The nation-state today is squeezed, on the one side, by the forces of global economics and, on the other side, by the political demands for devolution of power.
For many years, average bed occupancy level has been the primary measure that has guided hospital bed capacity decisions at both policy and managerial levels. Even now, the common wisdom that there is an excess of beds nationally has been based on a federal target of 85% occupancy that was developed about 25 years ago. This paper examines data from New York sate and uses queueing analysis to estimate bed unavailability in intensive care units (ICUs) and obstetrics units. Using various patient delay standards, units that appear to have insufficient capacity are identified.
There is a long normative 'Social Contract' tradition that attempts to characterize ex-post income in equalities that are agreeable to all 'behind a veil of ignorance.' This paper takes a similar normative approach to characterize social decision-making procedures. It is shown that quite generally some form of majority-voting is preferred to unanimity 'behind a veil of ignorance' whenever society faces dead weight costs in making compensating transfers.
Increasingly, the greatest source of economic value for many companies is a set of intangible assets that, typically, are not reflected on their balance sheets. Whereas for B2C companies these intangible assets are often dominated by brand value, for many B2B companies these assets are a set of relationships with a core group of powerful customers. When these relationships are well-developed and ongoing, they produce sustainable returns to shareholders.
This research focuses on the diffusion patterns of the adjacent generations of technology and its relation to the time that elapses between them (intergeneration time). The authors analyze 45 new technologies in 15 industries and find that the adoption curves systematically vary across generations from 2 years for dynamic random-access memory (DRAM) chips to more than 30 years for steelmaking. The longer the intergeneration time, the slower the adoption of the subsequent technology.
Previous research, assuming linear pricing, has argued that telecommunications networks may use a high access charge as an instrument of collusion. I show that this conclusion is difficult to maintain when operators compete in nonlinear pricing: (i) As long as subscription demand is inelastic, profits can remain independent of the access charge, even when customers are heterogeneous and networks engage in second-degree price discrimination.
We consider a setting where a firm delegates an investment decision and, subsequently, a sales decision to a privately informed manager. For both decisions corporate income taxes have real effects. We show that compensating the manager based on pre-tax residual income can ensure after-tax NPV-maximization ("goal congruence") for each decision problem in isolation. However, this metric fails if both decisions are nontrivial, since it requires asset-specific hurdle rates and hence precludes asset aggregation.
We consider a setting where a firm delegates an investment decision and, subsequently, a sales decision to a privately informed manager. For both decisions corporate income taxes have real effects. We show that compensating the manager based on pre-tax residual income can ensure after-tax NPV-maximization ("goal congruence") for each decision problem in isolation. However, this metric fails if both decisions are nontrivial, since it requires asset-specific hurdle rates and hence precludes asset aggregation.
This paper considers pricing and capacity sizing decisions, in a single-class Markovian model motivated by communication and information services. The service provider is assumed to operate a finite set of processing resources that can be shared among users; however, this shared mode of operation results in a service-rate degradation. Users, in turn, are sensitive to the delay implied by the potential degradation in service rate, and to the usage fee charged for accessing the system.
This paper considers pricing and capacity sizing decisions, in a single-class Markovian model motivated by communication and information services. The service provider is assumed to operate a finite set of processing resources that can be shared among users; however, this shared mode of operation results in a service-rate degradation. Users, in turn, are sensitive to the delay implied by the potential degradation in service rate, and to the usage fee charged for accessing the system.
We consider a two-echelon distribution system in which a supplier distributes a product to N competing retailers. The demand rate of each retailer depends on all of the retailers' prices, or alternatively, the price each retailer can charge for its product depends on the sales volumes targeted by all of the retailers. The supplier replenishes his inventory through orders (purchases, production runs) from an outside source with ample supply. From there, the goods are transferred to the retailers.
The Pfaat protein family alignment annotation tool is a Java-based multiple sequence alignment editor and viewer designed for protein family analysis. The application merges display features such as dendrograms, secondary and tertiary protein structure with SRS retrieval, subgroup comparison, and extensive user-annotation capabilities.
This paper studies dynamic competition in markets characterized by the introduction of technologically advanced next-generation products. Firms invest in new product effort in an attempt to attain industry leadership, thus securing high profits and benefiting from advantages relevant for the success of future product generations. The analysis reveals that when the current leader possesses higher research and development (R&D) competence, it tends to invest more in R&D than rivals and to retain its lead position.
In this paper, limited managerial capacity gives rise to a timing option: agents can implement projects now-or-later. Because each agent cares only about the project he implements, while the principal cares about the projects undertaken in aggregate, the timing option may be valued differently by the principal and the agents. Under a fair assignment rule (one that treats the agents symmetrically), these conflicting valuations result in agents sometimes not implementing the principal's desired projects.