Competitors are welcome: why incumbents might embrace entrants?

In this article we show that the price and the profit of an incumbent firm may increase after a new firm enters its market. Our analysis suggests that a well-established firm after competition emerges on its market might benefit from excluding some consumers from the low-end segment and concentrate only on its loyal consumers.

Strategic segmentation: when two monopolies are better than one

In this article we show that the price and the profit of an incumbent firm may increase after a new firm enters its market. Our analysis suggests that a well-established firm after competition emerges on its market might benefit from excluding some consumers from the low- end segment and concentrate only on its loyal consumers. We also find that strategic de-marketing can increase social welfare.

Research on the influence of behavioral forces that motivate trader behavior and sentiment: A prospect theory exegesis

This study focuses on empirical investigations and seeks implications by utilizing three different methodologies to test various aspects of trader behavior. The first methodology utilizes Prospect Theory to determine trader behavior during periods of extreme wealth contracting periods. Secondly, a threshold model to examine the sentiment variable is formulated and thirdly a study is made of the contagion effect and trader behavior. ^ The connection between consumers' sense of financial well-being or sentiment and stock market performance has been studied at length. However, without data on actual versus experimental performance, implications based on this relationship are meaningless. The empirical agenda included examining a proprietary file of daily trader activities over a five-year period. Overall, during periods of extreme wealth altering conditions, traders "satisfice" rather than choose the "best" alternative. A trader's degree of loss aversion depends on his/her prior investment performance. A model that explains the behavior of traders during periods of turmoil is developed. Prospect Theory and the data file influenced the design of the model. ^ Additional research included testing a model that permitted the data to signal the crisis through a threshold model. The third empirical study sought to investigate the existence of contagion caused by declining global wealth effects using evidence from the mining industry in Canada. Contagion, where a financial crisis begins locally and subsequently spreads elsewhere, has been studied in terms of correlations among similar regions. The results provide support for Prospect Theory in two out of the three empirical studies. ^ The dissertation emphasizes the need for specifying precise, testable models of investors' expectations by providing tools to identify paradoxical behavior patterns. True enhancements in this field must include empirical research utilizing reliable data sources to mitigate data mining problems and allow researchers to distinguish between expectations-based and risk-based explanations of behavior. Through this type of research, it may be possible to systematically exploit "irrational" market behavior. ^

Liquidity and asset pricing: A comparison between three-factor and three-moment capital asset pricing models

Liquidity is an important attribute of an asset that investors would like to take into consideration when making investment decisions. However, the previous empirical evidence whether liquidity is a determinant of stock return is not unanimous. This dissertation provides a very comprehensive study about the role of liquidity in asset pricing using the Fama-French (1993) three-factor and Kraus and Litzenberger (1976) three-moment CAPM as models for risk adjustment. The relationship between liquidity and well-known determinants of stock returns such as size and book-to-market are also investigated. This study examines the liquidity and asset pricing issues for both intertemporal as well as cross-sectional data. ^ The results indicate an existence of a liquidity premium, i.e., less liquid stocks would demand higher rate of return than more liquid stocks. More specifically, a drop of 1 percent in liquidity is associated with a higher rate of return of about 2 to 3 basis points per month. Further investigation reveals that neither the Fama-French three-factor model nor the three-moment CAPM captures the liquidity premium. Finally, the results show that well-known determinants of stock return such as size and book-to-market do not serve as proxy for liquidity. ^ Overall, this dissertation shows that a liquidity premium exists in the stock market and that liquidity is a distinct effect, and is not influenced by the presence of non-market factors, market factors and other stock characteristics.^

Audit committee director turnover

Actions by both private sector organizations and legislators in recent years have highlighted the importance of the audit committee of the board of directors of corporations in the financial reporting process. For example, the Sarbanes Oxley Act of 2002 has multiple sections that deal with the composition and functioning of audit committees. My dissertation examines multiple issues related to the composition of audit committees. In the first two parts of my dissertation, I examine the stock market reactions to disclosures of audit committee appointments and departures in the 8-Ks filed with the SEC during 2008 and 2009. I find that there is a positive stock market reaction to the appointment of audit committee directors who are financial experts. The second essay investigates the cumulative abnormal return to departure of audit committee directors. I find that when an accounting expert leaves the audit committee, the market reaction is significantly negative. These results are consistent with regulators’ concerns related to having directors with audit, accounting and other financial expertise on corporate audit committees. The third essay of my dissertation examines the changes in audit committee composition in the last decade. I find that while the increase in audit committee size is relatively modest, there has been a significant increase in the number of audit committee experts and the frequency of audit committee meetings over the past decade; interestingly, such increase in the number of meetings has persisted even after the media focus on the auditing profession, in the immediate aftermath of the Enron and Andersen failures, have waned. My results show that audit committee composition and its role continues to evolve with regulatory and other corporate governance related changes.

Relationship between Changes in Cash Flow and Investments in Publicy Traded Restaurant Firms in the United States

This research investigated the relationship between investments in fixed assets and free cash flows of U.S. restaurant firms while controlling for future investment opportunities and financial constraints. It also investigated investment and cash-flow sensitivity in the context of economic conditions. Results suggested that investments in small firms (with higher financial constraints) had relatively weaker sensitivity to cash flows than investments in large firms (with higher sensitivity). Controlling for economic conditions did not significantly change results. While the debate over sensitivity of investments to cash flows remains unresolved, it has not been explored widely in industry contexts, especially in services such as the restaurant industry. In addition to its contribution to this literature, this paper provides implications for cash-flow management in publicly traded restaurant companies.

Essays on risk aversion, diversification and non -participation

My dissertation consists of three essays. The central theme of these essays is the psychological factors and biases that affect the portfolio allocation decision. The first essay entitled, “Are women more risk-averse than men?” examines the gender difference in risk aversion as revealed by actual investment choices. Using a sample that controls for biases in the level of education and finance knowledge, there is evidence that when individuals have the same level of education, irrespective of their knowledge of finance, women are no more risk-averse than their male counterparts. However, the gender-risk aversion relation is also a function of age, income, wealth, marital status, race/ethnicity and the number of children in the household. The second essay entitled, “Can diversification be learned ?” investigates if investors who have superior investment knowledge are more likely to actively seek diversification benefits and are less prone to allocation biases. Results of cross-sectional analyses suggest that knowledge of finance increases the likelihood that an investor will efficiently allocate his direct investments across the major asset classes; invest in foreign assets; and hold a diversified equity portfolio. However, there is no evidence that investors who are more financially sophisticated make superior allocation decisions in their retirement savings. The final essay entitled, “The demographics of non-participation ”, examines the factors that affect the decision not to hold stocks. The results of probit regression models indicate that when individuals are highly educated, the decision to not participate in the stock market is less related to demographic factors. In particular, when individuals have attained at least a college degree and have advanced knowledge of finance, they are significantly more likely to invest in equities either directly or indirectly through mutual funds or their retirement savings. There is also evidence that the decision not to hold stocks is motivated by short-term market expectations and the most recent investment experience. The findings of these essays should increase the body of research that seeks to reconcile what investors actually do (positive theory) with what traditional theories of finance predict that investors should do (normative theory).

Research on the influence of behavioral forces that motivate trader behavior and sentiment- a prospect theory exegesis

This study focuses on empirical investigations and seeks implications by utilizing three different methodologies to test various aspects of trader behavior. The first methodology utilizes Prospect Theory to determine trader behavior during periods of extreme wealth contracting periods. Secondly, a threshold model to examine the sentiment variable is formulated and thirdly a study is made of the contagion effect and trader behavior. The connection between consumers' sense of financial well-being or sentiment and stock market performance has been studied at length. However, without data on actual versus experimental performance, implications based on this relationship are meaningless. The empirical agenda included examining a proprietary file of daily trader activities over a five-year period. Overall, during periods of extreme wealth altering conditions, traders "satisfice" rather than choose the "best" alternative. A trader's degree of loss aversion depends on his/her prior investment performance. A model that explains the behavior of traders during periods of turmoil is developed. Prospect Theory and the data file influenced the design of the model. Additional research included testing a model that permitted the data to signal the crisis through a threshold model. The third empirical study sought to investigate the existence of contagion caused by declining global wealth effects using evidence from the mining industry in Canada. Contagion, where a financial crisis begins locally and subsequently spreads elsewhere, has been studied in terms of correlations among similar regions. The results provide support for Prospect Theory in two out of the three empirical studies. The dissertation emphasizes the need for specifying precise, testable models of investors' expectations by providing tools to identify paradoxical behavior patterns. True enhancements in this field must include empirical research utilizing reliable data sources to mitigate data mining problems and allow researchers to distinguish between expectations-based and risk-based explanations of behavior. Through this type of research, it may be possible to systematically exploit "irrational" market behavior.

Essays on Risk Aversion, Diversification and Non-Participation

My dissertation consists of three essays. The central theme of these essays is the psychological factors and biases that affect the portfolio allocation decision. The first essay entitled, “Are women more risk-averse than men?” examines the gender difference in risk aversion as revealed by actual investment choices. Using a sample that controls for biases in the level of education and finance knowledge, there is evidence that when individuals have the same level of education, irrespective of their knowledge of finance, women are no more risk-averse than their male counterparts. However, the gender-risk aversion relation is also a function of age, income, wealth, marital status, race/ethnicity and the number of children in the household. The second essay entitled, “Can diversification be learned?” investigates if investors who have superior investment knowledge are more likely to actively seek diversification benefits and are less prone to allocation biases. Results of cross-sectional analyses suggest that knowledge of finance increases the likelihood that an investor will efficiently allocate his direct investments across the major asset classes; invest in foreign assets; and hold a diversified equity portfolio. However, there is no evidence that investors who are more financially sophisticated make superior allocation decisions in their retirement savings. The final essay entitled, “The demographics of non-participation”, examines the factors that affect the decision not to hold stocks. The results of probit regression models indicate that when individuals are highly educated, the decision to not participate in the stock market is less related to demographic factors. In particular, when individuals have attained at least a college degree and have advanced knowledge of finance, they are significantly more likely to invest in equities either directly or indirectly through mutual funds or their retirement savings. There is also evidence that the decision not to hold stocks is motivated by short-term market expectations and the most recent investment experience. The findings of these essays should increase the body of research that seeks to reconcile what investors actually do (positive theory) with what traditional theories of finance predict that investors should do (normative theory).

Recomendações para um sistema de sinalização tátil a partir de abordagens ergonômicas e da percepção do deficiente visual para o Campus Parnamirim do IFRN

This study reports recommendations for a tactile and graphic wayfinding system aiming to offer more orientability and mobility for visually impaired people (blindness and low vision) at Instituto Federal de Educação, Ciência e Tecnologia do Rio Grande do Norte (IFRN), Parnamirim Campus. It was necessary to focus on visual impaired people and approach concepts like orientation and accessibility at the built environment. In order to provide the comprehension of a complex social phenomenon and preserve the meaningful characteristics of the events, this research has developed a single case study in which elements of Post Occupation Evaluation have been used. Its purpose was to allow not only a technical analysis, but also the user perception about the space in use. The chosen tool to collect the user’s opinions and considerations was the Walk Together Method. The collected and analyzed information has demonstrated that, although Parnamirim Campus has implemented some interventions in relation to the spatial accessibility, they are still not enough to create an environment which arranges safety and autonomy for the visual impaired people and the other ones who attend there. This study suggests that it happened because the engineering interventions at the Campus have been based on Brazilian technical standards NBR 9050:2004, which is proper for the physical impaired people, but it does not offer enough information to respond to all the specific needs demanded by all the classifications of visual impairment.

Recomendações para um sistema de sinalização tátil a partir de abordagens ergonômicas e da percepção do deficiente visual para o Campus Parnamirim do IFRN

This study reports recommendations for a tactile and graphic wayfinding system aiming to offer more orientability and mobility for visually impaired people (blindness and low vision) at Instituto Federal de Educação, Ciência e Tecnologia do Rio Grande do Norte (IFRN), Parnamirim Campus. It was necessary to focus on visual impaired people and approach concepts like orientation and accessibility at the built environment. In order to provide the comprehension of a complex social phenomenon and preserve the meaningful characteristics of the events, this research has developed a single case study in which elements of Post Occupation Evaluation have been used. Its purpose was to allow not only a technical analysis, but also the user perception about the space in use. The chosen tool to collect the user’s opinions and considerations was the Walk Together Method. The collected and analyzed information has demonstrated that, although Parnamirim Campus has implemented some interventions in relation to the spatial accessibility, they are still not enough to create an environment which arranges safety and autonomy for the visual impaired people and the other ones who attend there. This study suggests that it happened because the engineering interventions at the Campus have been based on Brazilian technical standards NBR 9050:2004, which is proper for the physical impaired people, but it does not offer enough information to respond to all the specific needs demanded by all the classifications of visual impairment.

Essays in Macro Finance

I study the link between capital markets and sources of macroeconomic risk. In chapter 1 I show that expected inflation risk is priced in the cross section of stock returns even after controlling for cash flow growth and volatility risks. Motivated by this evidence I study a long run risk model with a built-in inflation non-neutrality channel that allows me to decompose the real stochastic discount factor into news about current and expected cash flow growth, news about expected inflation and news about volatility. The model can successfully price a broad menu of assets and provides a setting for analyzing cross sectional variation in expected inflation risk premium. For industries like retail and durable goods inflation risk can account for nearly a third of the overall risk premium while the energy industry and a broad commodity index act like inflation hedges. Nominal bonds are exposed to expected inflation risk and have inflation premiums that increase with bond maturity. The price of expected inflation risk was very high during the 70's and 80's, but has come down a lot since being very close to zero over the past decade. On average, the expected inflation price of risk is negative, consistent with the view that periods of high inflation represent a "bad" state of the world and are associated with low economic growth and poor stock market performance. In chapter 2 I look at the way capital markets react to predetermined macroeconomic announcements. I document significantly higher excess returns on the US stock market on macro release dates as compared to days when no macroeconomic news hit the market. Almost the entire equity premium since 1997 is being realized on days when macroeconomic news are released. At high frequency, there is a pattern of returns increasing in the hours prior to the pre-determined announcement time, peaking around the time of the announcement and dropping thereafter.

Estrategias defensivas en el mercado de renta variable en Colombia a la baja

El Mercado de Renta Variable en Colombia sigue estando en desarrollo, así como la confianza de los inversionistas a la hora de tomar decisiones de elección de portafolios óptimos de inversión, los cuales le brinden la maximización de los retornos esperados a un mínimo riesgo. Por lo anterior esta investigación explora y conoce más a fondo los sectores que conforman el mercado accionario y determina cual es más rentable que otro, a través del modelo propuesto por Harry Markowitz y teniendo en cuenta los avances a la teoría hecha por Sharpe a través del índice de Sharpe y Betas. Entre los sectores que conforman El Mercado de Renta Variable en Colombia está el Financiero, Materiales, Energía, Consumo Básico Servicios e Industrial; los cuales siguen la misma tendencia bajista que el Índice del Colcap, el cual en los últimos años está rentando negativamente. Por lo tanto con esta investigación el lector e inversionista cuenta con herramientas que aplican el modelo de Markowitz para vislumbrar de acuerdo a datos históricos, los sectores en los cuales se recomienda invertir y en los que por el contrario de acuerdo a la tendencia de debe desistir. Sin embargo, se aclara que esta investigación se basa en datos históricos, tendencias y cálculos matemáticos que pueden diferenciarse de la realidad actual, dado que por aspectos coyunturales económicos, políticos o sociales puede verse afectadas las rentabilidades de las acciones y sectores en los que decida invertir las personas.

Suomalaisten julkisesti listattujen senttiosakkeiden suoriutuminen verrattuna OMX Helsinki Small Cap -indeksin muihin osakkeisiin

Senttiosakkeista tehtyjä tutkimuksia on olemassa hyvin rajoitetusti, ja ne ovat keskittyneet lähinnä senttiosakelistautumisiin. Tässä tutkielmassa tarkastellaan suomalaisia julkisesti noteerattuja senttiosakkeita ja niiden suoriutumista kymmenen vuoden ajanjaksolla vuosina 2006–2015. Tavoitteena oli selvittää, onko suomalaisiin julkisesti noteerattuihin senttiosakkeisiin sijoittaminen kannattavaa toimintaa ja minkälaisia tuottoja on odotettavissa senttiosakkeisiin sijoittamalla. Tutkimusaineisto koostui tutkielmassa tehdyn määritelmän mukaisista senttiosakkeista ja muista Small Cap -indeksin osakkeista, joita kutsuttiin puolestaan ei-senttiosakkeiksi. Tuotot laskettiin osakkeiden päivittäisistä tuottoindekseistä. Tuottoja verrattiin lyhyellä, keskipitkällä ja pitkällä aikavälillä. Tuottojen tarkastelun tueksi senttiosakkeille ja ei-senttiosakkeille laskettiin seuraavat menestysmittarit: Sharpen luku, Treynorin indeksi ja Jensenin alfa. Lopuksi verrattiin vielä seuraavia tunnuslukuja: ROE (%), E/P-luku, P/B-luku, osinkotuotto-% ja velan suhde omaan pääomaan (%). Saatujen tulosten perusteella suomalaiset julkisesti noteeratut senttiosakkeet ovat lyhyellä aikavälillä kannattavia sijoituskohteita, mutta mitä pidemmäksi tarkasteluperiodi kasvoi, sitä huonommin ne suoriutuivat. Lisäksi senttiosakkeet hävisivät kaikilla tarkasteluperiodeilla ei-senttiosakkeille. Suurimmat positiiviset tuotot olivat kuitenkin yksittäisillä senttiosakkeilla. Senttiosakkeisiin havaittiin liittyvän paljon riskejä, kuten suuri volatiliteetti, suuret negatiiviset tuotot ja konkurssin mahdollisuus. Myös kaikki menestysmittarit ja tunnusluvut indikoivat senttiosakkeiden olevan ei-senttiosakkeita huonompia sijoituskohteita. Sijoittajien on oltava erityisen tarkkoja senttiosakkeiden kanssa, sillä niihin sijoittaminen on pitkälti verrattavissa uhkapelaamiseen.