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.

Les juifs et l'idée de Bildung dans l'Allemagne de culture protestante : chronique d'un mésamour à travers le long XIXe siècle

Des années 1780, quand surgit la question de l'émancipation des juifs, à la Première Guerre mondiale, qui dément l'optimisme de la perfectibilité du genre humain cultivé par la Bildung, le « long » XIXe siècle est la scène sur laquelle se déploient les efforts d'intégration des juifs dans la société et la culture allemandes, où la Bildung, intimement liée à l'esprit du protestantisme allemand qui l'a profondément marquée de son empreinte, tient lieu de médiation. Fil conducteur de ma recherche, la Bildung me permet de montrer en quoi son idéal est devenu un élément constitutif de l'identité des juifs allemands, en même temps qu'il cesse, sous les effets de la nationalisation d'une culture allemande devenue un outil au service d'un peuple particulier, d'être le projet, certes d'une communauté donnée, mais porteur d'universalisme. De fait, tout en adhérant à sa définition originale, les juifs ont su réinterpréter l'idée de Bildung en désamorçant l'alliance entre culture, germanité et nationalisme, afin de construire une nouvelle identité judéo-allemande qui réponde aux enjeux et aux exigences de la modernité ainsi qu'aux évolutions du temps, tout en visant à la reconnaissance des valeurs et du statut du judaïsme. Dans la mesure où cet idéal de la Bildung, sous les coups du nationalisme allemand, a perdu sa portée universelle pour, dans un processus de germanisation, devenir un instrument au service du projet nationaliste, les juifs vont progressivement se voir exclus de la nation allemande, quand bien même ou précisément parce qu'ils se sont identifiés à tel point au projet initial de la Bildung qu'ils en sont devenus les garants. From the 1780s, when the question of the emancipation of the Jews emerged, until World War I-a disappointment for those who were optimistic about cultivating a perfected humanity through Bildung (education)-the "long" nineteenth century is the stage on which the efforts to integrate the Jews into German society and culture took place. In this context, Bildung, which was decidedly bound to and profoundly marked by the German Protestant spirit, served as mediation. The underlying theme of Bildung in my research enables me to show how its ideal became the constitutive element of German Jewish identity. Concurrently, under the effects of the nationalization of German culture that became a tool in the service of a specific folk, the ideal of Bildung ceased to be a project that conveyed universal meaning. In fact, although the Jewish people agreed with its original definition, they succeeded in reinterpreting the idea of Bildung by neutralizing the alliance between culture, being German, and nationalism in order to elaborate a new German-Jewish identity in reply to the challenges and requirements of modernity and the evolution of society while still recognizing the values and status of Judaism. Inasmuch as the ideal of Bildung lost its universal significance for serving the nationalist project under the influence of German nationalism, the Jews were gradually excluded from the German folk, which took place despite, or precisely because, they identified to such an extent with the original aims of Bildung that they became the guarantors for it. Das ,,lange" 19. Jahrhundert bildet die Kulisse der Integrationsbemühungen der Juden in die deutsche Gesellschaft und Kultur, von den 1780er Jahren, als die Frage nach der Judenemanzipation zutage kommt, bis zum Ersten Weltkrieg, der den Optimismus der menschlichen Verbesserungsfahigkeit durch die Bildung widerlegt. Die mit dem Geist des deutschen Protestantismus eng verbundene Bildung dient hier als Mediation. Der rote Faden der Bildung ermöglicht mir zu zeigen, inwiefern ihr Ideal wesentlich für die jüdische Identität geworden ist. Zur gleichen Zeit hat das Bildungsideal, unter der Wirkung der Nationalisierung der deutschen Kultur, die zum Werkzeug eines eigenartigen Volkes gemacht wurde, sein universales Wesen verloren. In der Tat, obwohl die Juden dem ursprünglichen Bildungsideal zustimmten, haben sie die Bildung neu interpretiert, indem sie die Verbindung zwischen Kultur, Germanentum und Nationalismus entschärft und eine neue deutsch-jüdische Identität gebildet haben, die den Herausforderungen und den Ansprüchen der Moderne sowie dem Gesellschaftswandel entsprach und gleichzeitig darauf abzielte, die Werte und den Status des Judentums zu anerkennen. Insoweit, als das Bildungsideal seine universale Geltung unter dem Einfluss des deutschen Nationalismus verloren hat, um den nationalistischen Absichten zu dienen, wurden die Juden nach und nach vom deutschen Volk ausgeschlossen, selbst wenn oder gerade weil sie sich dermassen mit dem ursprünglichen Zweck der Bildung identifiziert haben, dass sie ihre Garanten geworden sind.

The cells and peripheral representation of sodium taste in mice.

Salt taste in mammals can trigger two divergent behavioural responses. In general, concentrated saline solutions elicit robust behavioural aversion, whereas low concentrations of NaCl are typically attractive, particularly after sodium depletion. Notably, the attractive salt pathway is selectively responsive to sodium and inhibited by amiloride, whereas the aversive one functions as a non-selective detector for a wide range of salts. Because amiloride is a potent inhibitor of the epithelial sodium channel (ENaC), ENaC has been proposed to function as a component of the salt-taste-receptor system. Previously, we showed that four of the five basic taste qualities-sweet, sour, bitter and umami-are mediated by separate taste-receptor cells (TRCs) each tuned to a single taste modality, and wired to elicit stereotypical behavioural responses. Here we show that sodium sensing is also mediated by a dedicated population of TRCs. These taste cells express the epithelial sodium channel ENaC, and mediate behavioural attraction to NaCl. We genetically engineered mice lacking ENaCalpha in TRCs, and produced animals exhibiting a complete loss of salt attraction and sodium taste responses. Together, these studies substantiate independent cellular substrates for all five basic taste qualities, and validate the essential role of ENaC for sodium taste in mice.