Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Eating habits of preschool children with high migrant status in Switzerland according to a new food frequency questionnaire.

Assessment of eating habits in young children from multicultural backgrounds has seldom been conducted. Our objectives were to study the reproducibility and the results of a food frequency questionnaire (FFQ) developed to assess changes in eating habits of preschool children with a high migrant population, in the context of a multidisciplinary multilevel lifestyle intervention. Three kindergarten classes (53% from migrant backgrounds) in French-speaking Switzerland were randomly selected and included 16 girls and 28 boys (mean age +/- SD, 5.4 +/- 0.7 years). The FFQ was filled out twice within a 4-week interval by the parents. Spearman rank correlations between the first and the second FFQ for the 39 items of the food questions were as follows: low (r < 0.50) for 8 (7 P < .05 and 1 nonsignificant), moderate (0.50 <or= r < 0.70) for 22 (all P < .01), and high (r >or= 0.70) for 9 (all P < .01). In addition, 28 of 39 intraclass correlation coefficients were high (>0.50, all P < .01). Eighty-six percent of the children ate breakfast at home daily, but only 67% had lunch at home. The percentages of children eating at least once a week in front of the TV were as follows: 50% for breakfast, 33% for lunch, 38% for dinner, and 48% for snacks. Forty percent of children asked their parents to buy food previously seen in advertisements and ate fast food between once a week and once a month. Children generally consumed foods with a high-energy content. The FFQ yielded good test-retest reproducibility for most items of the food questions and gave relevant findings about the eating habits of preschool children in areas with a high migrant population.

Inter- and intra-individual variation of oxytocin secretion in oestrous mares exposed to stallions

The neuro-peptide hormone oxytocin regulates several reproductive mechanisms in mammals, such as uterine contractions during parturition and milk ejection in the lactating mammary gland. Oxytocin may also influence behavior and behavioral strategies, e.g. pair bonding, social recognition, maternal behavior, trust building, or anxiety. Teasing oestrous mares by a stallion provokes the release of oxytocin. We therefore tested whether such elevated oxytocin levels reveal possible mate preferences as determined in typical preference tests.

Associative Issue Ownership as a Determinant of Voters' Campaign Attention

Campaigns raise public interest in politics and allow parties to convey their messages to voters. However, voters' exposure and attention during campaigns are biased towards parties and candidates they like. This hinders parties' ability to reach new voters. This paper theorises and empirically tests a simple way in which parties can break partisan selective attention: owning an issue. When parties own issues that are important for a voter, that voter is more likely to notice them. Using survey data collected prior to the 2009 Belgian regional elections it is shown that this effect exists independent of partisan preferences and while controlling for the absolute visibility of a party in the media. This indicates that issue ownership has an independent impact on voters' attention to campaigns. This finding shows that owning salient issues yields (potential) advantages for parties, since getting noticed is a prerequisite for conveying electoral messages and increasing electoral success.