This paper investigates how affective forecasting errors (A.F.E.s), the difference between anticipated emotion and the emotion actually experienced, may induce changes in preferences on time, risk and occupation after combat. Building on psychological theories incorporating the role of emotion in decision-making, we designed a before-and-after-mission survey for Danish soldiers deployed to Afghanistan in 2011. Our hypothesis of an effect from A.F.E.s is tested by controlling for other mechanisms that may also change preferences: immediate emotion, trauma effect – proxied by post-traumatic stress disorder (P.T.S.D.) – and changes in wealth and risk perception. At the aggregate level, results show stable preferences before and after mission. We find positive A.F.E.s for all three emotions studied (fear, anxiety and excitement), with anticipated emotions stronger than those actually experienced. We provide evidence that positive A.F.E.s regarding fear significantly increase risk tolerance and impatience, while positive A.F.E.s regarding excitement strengthen the will to stay in the military. Trauma has no impact on these preferences.
This paper examines the distributional implications of inflation on top income shares in 14 advanced economies using data over the period 1920–2016. We use local projections to analyze how top income shares respond to an inflation shock, and panel regressions in which all variables are defined as 5-year averages to examine the impact of inflation on the position of the top-one-percent in the long run. Our findings suggest that inflation reduces the share of national income held by the top 1 percent. Furthermore, we find that inflation shocks and long-run inflation have similar effects on top income shares.
Under income-differentiated mortality, poverty measures suffer from a selection bias: they do not count the missing poor (i.e., persons who would have been counted as poor provided they did not die prematurely). The Pre-Industrial period being characterized by an evolutionary advantage (i.e., a higher number of surviving children per household) of the non-poor over the poor, one may expect that the missing poor bias is substantial during that period. This paper quantifies the missing poor bias in Pre-Industrial societies, by computing the hypothetical headcount poverty rates that would have prevailed provided the non-poor did not benefit from an evolutionary advantage over the poor. Using data on Pre-Industrial England and France, we show that the sign and size of the missing poor bias are sensitive to the degree of downward social mobility.
We investigate whether and how an individual giving decision is affected in risky environments in which the recipient’s wealth is random. We demonstrate that, under risk neutrality, the donation of dictators with a purely ex post view of fairness should, in general, be affected by the riskiness of the recipient’s payoff, while dictators with a purely ex ante view should not be. Furthermore, we observe that some influential inequality aversion preferences functions yield opposite predictions when we consider ex post view of fairness. Hence, we report on dictator games laboratory experiments in which the recipient’s wealth is exposed to an actuarially neutral and additive background risk. Our experimental data show no statistically significant impact of the recipient’s risk exposure on dictators’ giving decisions. This result appears robust to both the experimental design (within subjects or between subjects) and the origin of the recipient’s risk exposure (chosen by the recipient or imposed on the recipient). Although we cannot sharply validate or invalidate alternative fairness theories, the whole pattern of our experimental data can be simply explained by assuming ex ante view of fairness and risk neutrality.
Evolutionary finance focuses on questions of “survival and extinction” of investment strategies (portfolio rules) in the market selection process. It analyzes stochastic dynamics of financial markets in which asset prices are determined endogenously by a short-run equilibrium between supply and demand. Equilibrium is formed in each time period in the course of interaction of portfolio rules of competing market participants. A comprehensive theory of evolutionary dynamics of this kind has been developed for models in which short selling is not allowed and asset supply is exogenous. The present paper extends the theory to a class of models with short selling and endogenous asset supply.
Major central banks accept nonmarketable assets, such as pooled individual corporate loans, as collateral in their refinancing operations with banks. Such “eligible” loans to firms may provide a liquidity service to the banks which originate them. Banks may in turn pass on a part of this benefit to their borrowers in the form of a reduced interest rate: the eligibility discount. We exploit a surprise extension of the Eurosystem's set of eligible collateral to medium-quality corporate loans, the Additional Credit Claims (ACC) program of February 2012, to assess the eligibility discount to corporate loans spreads in France. We find that becoming eligible to the Eurosystem's collateral framework translates into a relative reduction in rates by 8 bps for new loans issued to ACC-eligible firms , controlling for loan-, firm-, and bank-level characteristics. We find that this collateral channel of monetary policy is only active for the banks which have a lower opportunity cost in pledging credit claims and which are well-capitalized.
Exloring the role of different types of investors on stock market is crticial since different types of investors react and behave differently when making investment decision. The role of investor behavior is a very important issue in an immature stock market like Vietnam stock market because the market is characterized by a large number of individual investors and low reporting standard. Institutional and foreign investors however play an influential role due to their large exposure and strong investment expertise. Clearly, examining the role of investor behavior and its impact on the stock market in Vietnam is an important topic in finance. A significant body of empirical research has shown that investor behavior is an essential factor to explain stock price that the classical financial theory cannot explain. This research examines the role of investor behavior in stock market by examining the relationship between investor behavior and stock return using the Vietnamese stock exchange data. We create a sentiment index using the principal components analysis (PCA). Consistent with the sentiment and stock return literature, the research shows a negative contemporaneous relationship between investor sentiment and market return.
In recent years there has been a surge of interest in the subject of inequality, fuelled by new facts and new thinking. The literature on inequality has expanded rapidly as official data on income, wealth, and other personal information have become richer and more easily accessible. Ideas about the meaning of inequality have expanded to encompass new concepts and different dimensions of economic inequality. The purpose of this chapter is to give a concise overview of the issues that are involved in translating ideas about inequality into practice using various types of data.
The pre-Global Financial Crisis build-up, followed by the post-crisis collapse, in bank liquidity creation in developed countries is well-documented (Berger and Bowman, Berger and Bouwman, Review of Financial Studies 22:3779–3837, 2009). Comparable analyses on developing and emerging countries (DECs) have been severely hindered by the lack of detailed bank-by-bank balance sheet data. This paper proposes a new, high-frequency, Aggregate Bank Liquidity Creation (A-BLC) measure for 114 DECs on a comparable cross-country basis, which relies on macroeconomic, country-wide, banking systems’ balance sheet data. The A-BLC database allows us to assess the extent of bank fragility arising from illiquidity associated with intermediation at the banking system level for every DEC, at a monthly frequency over the period 2001–2016. Our measure captures more accurately than other measures proposed in the literature the evolution of bank liquidity creation in the DECs. Stylised facts and panel-regression analysis suggest a sharp pre-crisis build-up and post-crisis fall in liquidity creation in DECs, larger then that observed for developed countries. In addition, financial depth and stability appear as particularly important drivers of A-BLC in DECs.