Essays on the Impact of Stakeholders' Sentiment on the Financial Decision Making Process

The most important factor that affects the decision making process in finance is the risk which is usually measured by variance (total risk) or systematic risk (beta). Since investors' sentiment (whether she is an optimist or pessimist) plays a very important role in the choice of beta measure, any decision made for the same asset within the same time horizon will be different for different individuals. In other words, there will neither be homogeneity of beliefs nor the rational expectation prevalent in the market due to behavioral traits. This dissertation consists of three essays. In the first essay, Investor Sentiment and Intrinsic Stock Prices, a new technical trading strategy is developed using a firm specific individual sentiment measure. This behavioral based trading strategy forecasts a range within which a stock price moves in a particular period and can be used for stock trading. Results show that sample firms trade within a range and show signals as to when to buy or sell. The second essay, Managerial Sentiment and the Value of the Firm, examines the effect of managerial sentiment on the project selection process using net present value criterion and also effect of managerial sentiment on the value of firm. Findings show that high sentiment and low sentiment managers obtain different values for the same firm before and after the acceptance of a project. The last essay, Investor Sentiment and Optimal Portfolio Selection, analyzes how the investor sentiment affects the nature and composition of the optimal portfolio as well as the performance measures. Results suggest that the choice of the investor sentiment completely changes the portfolio composition, i.e., the high sentiment investor will have a completely different choice of assets in the portfolio in comparison with the low sentiment investor. The results indicate the practical application of behavioral model based technical indicators for stock trading. Additional insights developed include the valuation of firms with a behavioral component and the importance of distinguishing portfolio performance based on sentiment factors.

Ecological indicators for system-wide assessment of the greater everglades ecosystem restoration program

Developing scientifically credible tools for measuring the success of ecological restoration projects is a difficult and a non-trivial task. Yet, reliable measures of the general health and ecological integrity of ecosystems are critical for assessing the success of restoration programs. The South Florida Ecosystem Restoration Task Force (Task Force), which helps coordinate a multi-billion dollar multi-organizational effort between federal, state, local and tribal governments to restore the Florida Everglades, is using a small set of system-wide ecological indicators to assess the restoration efforts. A team of scientists and managers identified eleven ecological indicators from a field of several hundred through a selection process using 12 criteria to determine their applicability as part of a system-wide suite. The 12 criteria are: (1) is the indicator relevant to the ecosystem? (2) Does it respond to variability at a scale that makes it applicable to the entire system? (3) Is the indicator feasible to implement and is it measureable? (4) Is the indicator sensitive to system drivers and is it predictable? (5) Is the indicator interpretable in a common language? (6) Are there situations where an optimistic trend with regard to an indicator might suggest a pessimistic restoration trend? (7) Are there situations where a pessimistic trend with regard to an indicator may be unrelated to restoration activities? (8) Is the indicator scientifically defensible? (9) Can clear, measureable targets be established for the indicator to allow for assessments of success? (10) Does the indicator have specificity to be able to result in corrective action? (11) What level of ecosystem process or structure does the indicator address? (12) Does the indicator provide early warning signs of ecological change? In addition, a two page stoplight report card was developed to assist in communicating the complex science inherent in ecological indicators in a common language for resource managers, policy makers and the public. The report card employs a universally understood stoplight symbol that uses green to indicate that targets are being met, yellow to indicate that targets have not been met and corrective action may be needed and red to represent that targets are far from being met and corrective action is required. This paper presents the scientific process and the results of the development and selection of the criteria, the indicators and the stoplight report card format and content. The detailed process and results for the individual indicators are presented in companion papers in this special issue of Ecological Indicators.