Research articles for the 2020-11-01

Aggregative Efficiency of Bayesian Learning in Networks
Krishna Dasaratha,Kevin He

In social-learning settings where individuals receive private signals and observe network neighbors' actions, the network structure often obstructs information aggregation. We consider sequential social learning with rational agents and Gaussian signals and ask how the efficiency of signal aggregation changes with the network. Rational actions in our model admit a signal-counting interpretation of accuracy, which lets us compare the aggregative efficiency of social learning across networks. Learning is very inefficient in a class of networks where agents move in generations and observe the previous generation. Generations after the first contribute very little additional information, even when generations are arbitrarily large.

COVID-19 Impact on Global Maritime Mobility
Leonardo M. Millefiori,Paolo Braca,Dimitris Zissis,Giannis Spiliopoulos,Stefano Marano,Peter K. Willett,Sandro Carniel

To prevent the outbreak of the Coronavirus disease (COVID-19), numerous countries around the world went into lockdown and imposed unprecedented containment measures. These restrictions progressively produced changes to social behavior and global mobility patterns, evidently disrupting social and economic activities. Here, using maritime traffic data, collected via a global network of Automatic Identification System (AIS) receivers, we analyze the effects that the COVID-19 pandemic and the containment measures had on the shipping industry, which accounts alone for more than 80% of the world trade. We introduce the notion of a "maritime mobility index," a synthetic composite index, to quantitatively assess ship mobility in a given unit of time. The mobility index calculation used in this study, has a worldwide extent and is based on the computation of cumulative navigated miles (CNM) of all ships reporting their position and navigational status via AIS. We compare 2020 mobility levels to those of previous years assuming that an unchanged growth rate would have been achieved, if not for COVID-19. Following the outbreak, we find an unprecedented drop in maritime mobility, across all categories of commercial shipping. The reduced activity is observable from March to June, when the most severe restrictions were in force, producing a variation of mobility quantified between -5.62% and -13.77% for container ships, between +2.28% and -3.32% for dry bulk, between -0.22% and -9.27% for wet bulk, and between -19.57% and -42.77% for passenger shipping. The presented study is unprecedented for the uniqueness and completeness of the employed AIS dataset, which comprises a trillion AIS messages broadcast worldwide by 50000 ships, a figure that closely parallels the documented size of the world merchant fleet.

Discrete-time portfolio optimization under maximum drawdown constraint with partial information and deep learning resolution
Carmine De Franco,Johann Nicolle,Huyên Pham

We study a discrete-time portfolio selection problem with partial information and maxi\-mum drawdown constraint. Drift uncertainty in the multidimensional framework is modeled by a prior probability distribution. In this Bayesian framework, we derive the dynamic programming equation using an appropriate change of measure, and obtain semi-explicit results in the Gaussian case. The latter case, with a CRRA utility function is completely solved numerically using recent deep learning techniques for stochastic optimal control problems. We emphasize the informative value of the learning strategy versus the non-learning one by providing empirical performance and sensitivity analysis with respect to the uncertainty of the drift. Furthermore, we show numerical evidence of the close relationship between the non-learning strategy and a no short-sale constrained Merton problem, by illustrating the convergence of the former towards the latter as the maximum drawdown constraint vanishes.

Discrimination in the Venture Capital Industry: Evidence from Two Randomized Controlled Trials
Ye Zhang

This paper examines discrimination based on startup founders' gender, race, and age by early-stage investors, using two randomized controlled trials with real venture capitalists. The first experiment invites U.S. investors to evaluate multiple randomly generated startup profiles, which they know to be hypothetical, in order to be matched with real, high-quality startups from collaborating incubators. Investors can also donate money to randomly displayed startup teams to show their anonymous support during the COVID-19 pandemic. The second experiment sends hypothetical pitch emails with randomized startups' information to global venture capitalists and compares their email responses by utilizing a new email technology that tracks investors' detailed information acquisition behaviors. I find three main results: (i) Investors are biased towards female, Asian, and older founders in "lower contact interest" situations; while biased against female, Asian, and older founders in "higher contact interest" situations. (ii) These two experiments identify multiple coexisting sources of bias. Specifically, statistical discrimination is an important reason for "anti-minority" investors' contact and investment decisions, which was proved by a newly developed consistent decision-based heterogeneous effect estimator. (iii) There was a temporary, stronger bias against Asian founders during the COVID-19 outbreak, which started to fade in April 2020.

Disparities in ridesourcing demand for mobility resilience: A multilevel analysis of neighborhood effects in Chicago, Illinois
Elisa Borowski,Jason Soria,Joseph Schofer,Amanda Stathopoulos

Mobility resilience refers to the ability of individuals to complete their desired travel despite unplanned disruptions to the transportation system. The potential of new on-demand mobility options, such as ridesourcing services, to fill unpredicted gaps in mobility is an underexplored source of adaptive capacity. Applying a natural experiment approach to newly released ridesourcing data, we examine variation in the gap-filling role of on-demand mobility during sudden shocks to a transportation system by analyzing the change in use of ridesourcing during unexpected rail transit service disruptions across the racially and economically diverse city of Chicago. Using a multilevel mixed model, we control not only for the immediate station attributes where the disruption occurs, but also for the broader context of the community area and city quadrant in a three-level structure. Thereby the unobserved variability across neighborhoods can be associated with differences in factors such as transit ridership, or socio-economic status of residents, in addition to controlling for station level effects. Our findings reveal that individuals use ridesourcing as a gap-filling mechanism during rail transit disruptions, but there is strong variation across situational and locational contexts. Specifically, our results show larger increases in transit disruption responsive ridesourcing during weekdays, nonholidays, and more severe disruptions, as well as in community areas that have higher percentages of White residents and transit commuters, and on the more affluent northside of the city. These findings point to new insights with far-reaching implications on how ridesourcing complements existing transport networks by providing added capacity during disruptions but does not appear to bring equitable gap-filling benefits to low-income communities of color that typically have more limited mobility options.

Distributionally Robust Newsvendor with Moment Constraints
Derek Singh,Shuzhong Zhang

This paper expands the work on distributionally robust newsvendor to incorporate moment constraints. The use of Wasserstein distance as the ambiguity measure is preserved. The infinite dimensional primal problem is formulated; problem of moments duality is invoked to derive the simpler finite dimensional dual problem. An important research question is: How does distributional ambiguity affect the optimal order quantity and the corresponding profits/costs? To investigate this, some theory is developed and a case study in auto sales is performed. We conclude with some comments on directions for further research.

Financial Data Analysis Using Expert Bayesian Framework For Bankruptcy Prediction
Amir Mukeri,Habibullah Shaikh,Dr. D.P. Gaikwad

In recent years, bankruptcy forecasting has gained lot of attention from researchers as well as practitioners in the field of financial risk management. For bankruptcy prediction, various approaches proposed in the past and currently in practice relies on accounting ratios and using statistical modeling or machine learning methods. These models have had varying degrees of successes. Models such as Linear Discriminant Analysis or Artificial Neural Network employ discriminative classification techniques. They lack explicit provision to include prior expert knowledge. In this paper, we propose another route of generative modeling using Expert Bayesian framework. The biggest advantage of the proposed framework is an explicit inclusion of expert judgment in the modeling process. Also the proposed methodology provides a way to quantify uncertainty in prediction. As a result the model built using Bayesian framework is highly flexible, interpretable and intuitive in nature. The proposed approach is well suited for highly regulated or safety critical applications such as in finance or in medical diagnosis. In such cases accuracy in the prediction is not the only concern for decision makers. Decision makers and other stakeholders are also interested in uncertainty in the prediction as well as interpretability of the model. We empirically demonstrate these benefits of proposed framework on real world dataset using Stan, a probabilistic programming language. We found that the proposed model is either comparable or superior to the other existing methods. Also resulting model has much less False Positive Rate compared to many existing state of the art methods. The corresponding R code for the experiments is available at Github repository.

Impact of COVID-19 Pandemic on Global Economy
Abba Ahmed, Bello
This paper examined the effect of COVID-19 pandemic on the global economy. The study employed an analytical approach reviewing the most recent literature COVID-19 global Statistics, oil price, policy responses and stock market. It was discovered that COVID-19 has spread to well over 200 countries and the economic cost may last longer than the health effect. The outbreak caused an unprecedented crash in oil price which devastated the economies of oil dependent countries. The impact of the shock of COVID-19 is likely to be less than the impact of the extreme measures taking to flatten the spread such as quarantine, lockdowns, traveling and movement restriction. The study recommends a coordinated action by all countries in implementing medical protocol of curtailing the spread and a fiscal response targeted at the productive sectors to fast-track kick starting of the economies. This will require more palliative measures to consumers and bailout to businesses.

Markowitz portfolio selection for multivariate affine and quadratic Volterra models
Eduardo Abi Jaber,Enzo Miller,Huyên Pham

This paper concerns portfolio selection with multiple assets under rough covariance matrix. We investigate the continuous-time Markowitz mean-variance problem for a multivariate class of affine and quadratic Volterra models. In this incomplete non-Markovian and non-semimartingale market framework with unbounded random coefficients, the optimal portfolio strategy is expressed by means of a Riccati backward stochastic differential equation (BSDE). In the case of affine Volterra models, we derive explicit solutions to this BSDE in terms of multi-dimensional Riccati-Volterra equations. This framework includes multivariate rough Heston models and extends the results of \cite{han2019mean}. In the quadratic case, we obtain new analytic formulae for the the Riccati BSDE and we establish their link with infinite dimensional Riccati equations. This covers rough Stein-Stein and Wishart type covariance models. Numerical results on a two dimensional rough Stein-Stein model illustrate the impact of rough volatilities and stochastic correlations on the optimal Markowitz strategy. In particular for positively correlated assets, we find that the optimal strategy in our model is a `buy rough sell smooth' one.

Modelling volatile time series with v-transforms and copulas
Alexander J. McNeil

An approach to the modelling of volatile time series using a class of uniformity-preserving transforms for uniform random variables is proposed. V-transforms describe the relationship between quantiles of the stationary distribution of the time series and quantiles of the distribution of a predictable volatility proxy variable. They can be represented as copulas and permit the formulation and estimation of models that combine arbitrary marginal distributions with copula processes for the dynamics of the volatility proxy. The idea is illustrated using a Gaussian ARMA copula process and the resulting model is shown to replicate many of the stylized facts of financial return series and to facilitate the calculation of marginal and conditional characteristics of the model including quantile measures of risk. Estimation is carried out by adapting the exact maximum likelihood approach to the estimation of ARMA processes and the model is shown to be competitive with standard GARCH in an empirical application.

Optimal control of multiple Markov switching stochastic system with application to portfolio decision
Jianmin Shi

In this paper we set up an optimal control framework for a hybrid stochastic system with dual or multiple Markov switching diffusion processes, while Markov chains governing these switching diffusions are not identical as assumed by the existing literature. As an application and illustration of this model, we solve a portfolio choice problem for an investor facing financial and labor markets that are both regime switching. In continuous time context we combine two separate Markov chains into one synthetic Markov chain and derive its corresponding generator matrix, then state the HJB equations for the optimal control problem with the newly synthesized Markov switching diffusion. Furthermore, we derive explicit solutions and value functions under some reasonable specifications.

Optimal liquidation for a risk averse investor in a one-sided limit order book driven by a Levy process
Arne Lokka,Junwei Xu

In a one-sided limit order book, satisfying some realistic assumptions, where the unaffected price process follows a Levy process, we consider a market agent that wants to liquidate a large position of shares. We assume that the agent has constant absolute risk aversion and aims at maximising the expected utility of the cash position at the end of time. The agent is then faced with the problem of balancing the market risk and the cost of a rapid execution. In particular we are interested in how the agent should go about optimally submitting orders. Since liquidation normally takes place within a short period of time, modelling the risk as a Levy process should provide a realistic model with good statistical fit to observed market data, and thus the model should provide a realistic reflection of the agent's market risk. We reduce the optimisation problem to a deterministic two-dimensional singular problem, to which we are able to derive an explicit solution in terms of the model data. In particular we find an expression for the optimal intervention boundary, which completely characterise the optimal liquidation strategy.

Preference Estimation in Deferred Acceptance with Partial School Rankings
Shanjukta Nath

The Deferred Acceptance algorithm is a popular school allocation mechanism thanks to its strategy proofness. However, with application costs, strategy proofness fails, leading to an identification problem. In this paper, I address this identification problem by developing a new Threshold Rank setting that models the entire rank order list as a one-step utility maximization problem. I apply this framework to study student assignments in Chile. There are three critical contributions of the paper. I develop a recursive algorithm to compute the likelihood of my one-step decision model. Partial identification is addressed by incorporating the outside value and the expected probability of admission into a linear cost framework. The empirical application reveals that although school proximity is a vital variable in school choice, student ability is critical for ranking high academic score schools. The results suggest that policy interventions such as tutoring aimed at improving student ability can help increase the representation of low-income low-ability students in better quality schools in Chile.

Preventing COVID-19 Fatalities: State versus Federal Policies
Jean-Paul Renne,Guillaume Roussellet,Gustavo Schwenkler

Are COVID-19 fatalities large when a federal government does not to impose containment policies and instead allow states to implement their own policies? We answer this question by developing a stochastic extension of a SIRD epidemiological model for a country composed of multiple states. Our model allows for interstate mobility. We consider three policies: mask mandates, stay-at-home orders, and interstate travel bans. We fit our model to daily U.S. state-level COVID-19 death counts and exploit our estimates to produce various policy counterfactuals. While the restrictions imposed by some states inhibited a significant number of virus deaths, we find that more than two-thirds of U.S. COVID-19 deaths could have been prevented by late September 2020 had the federal government imposed federal mandates as early as some of the earliest states did. Our results highlight the need for early actions by a federal government for the successful containment of a pandemic.

Propaganda, Alternative Media, and Accountability in Fragile Democracies
Anqi Li,Davin Raiha,Kenneth W. Shotts

We develop a model of electoral accountability with mainstream and alternative media. In addition to regular high- and low-competence types, the incumbent may be an aspiring autocrat who controls the mainstream media and will subvert democracy if retained in office. A truthful alternative media can help voters identify and remove these subversive types while re-electing competent leaders. A malicious alternative media, in contrast, spreads false accusations about the incumbent and demotivates policy effort. If the alternative media is very likely be malicious and hence is unreliable, voters ignore it and use only the mainstream media to hold regular incumbents accountable, leaving aspiring autocrats to win re-election via propaganda that portrays them as effective policymakers. When the alternative media's reliability is intermediate, voters heed its warnings about subversive incumbents, but the prospect of being falsely accused demotivates effort by regular incumbents and electoral accountability breaks down.

Quantifying the trade-off between income stability and the number of members in a pooled annuity fund
Thomas Bernhardt,Catherine Donnelly

The number of people who receive a stable income for life from a closed pooled annuity fund is studied. Income stability is defined as keeping the income within a specified tolerance of the initial income in a fixed proportion of future scenarios. The focus is on quantifying the effect of the number of members, which drives the level of idiosyncratic longevity risk in the fund, on the income stability. To do this, investment returns are held constant and systematic longevity risk is omitted. An analytical expression that closely approximates the number of fund members who receive a stable income is derived and is seen to be independent of the mortality model. An application of the result is to calculate the length of time for which the pooled annuity fund can provide the desired level of income stability

The Unprecedented Australian Stock Market Reaction to the Black Summer Bushfires and the COVID-19 Pandemic Outbreak: A Sectoral Analysis
Gunay, Samet,Bakry, Walid,Al-Mohamad, Somar
Besides inducing severe illness and health risks for humans, the Black Summer Bushfires and the COVID-19 pandemic has also disrupted the functioning of the Australian and the global economy. In this study, we analyse the effect of the devastating Black Summer Bushfires and the COVID-19 pandemic on the stock returns in various sectors of the Australian economy. To that end, we form ten sectoral indices and examine the influence of both events on them. The results indicate that, along with the pandemic, conditional correlations of these index pairs increase in unprecedented ways. Detected break dates exhibit unstable relationships between many sectors during the COVID-19 pandemic period, as they display numerous breaks in conditional correlations. MRSR analysis results indicate that the pandemic is mainly affecting four sectors (Consumer Staples, Energy, Industrials, and Real Estate) with Industrials and Real Estate sectors being the most impacted sectors. Further, firm size tends to have a substantial effect on the Consumer Discretionary, Consumer Staples, Health Care, and Communication Services sectors. Our results also indicate that the Black Summer Bushfires had a relatively small impact on most Australian sectors as the event only impacted large firms in the Consumer Staples and Industrials sectors and small firms in the Energy sector.

The implications of large-scale containments policies on global maritime trade during the COVID-19 pandemic
Jasper Verschuur,Elco Koks,Jim Hall

The implementation of large-scale containment measures by governments to contain the spread of the COVID-19 virus has resulted in a large supply and demand shock throughout the global economy. Here, we use empirical vessel tracking data and a newly developed algorithm to estimate the global maritime trade losses during the first eight months of the pandemic. Our results show widespread trade losses on a port level with the largest absolute losses found for ports in China, the Middle-East and Western Europe, associated with the collapse of specific supply-chains (e.g. oil, vehicle manufacturing). In total, we estimate that global maritime trade reduced by -7.0% to -9.6% during the first eight months of 2020, which is equal to around 206-286 million tonnes in volume losses and up to 225-412 billion USD in value losses. The fishery, mining and quarrying, electrical equipment and machinery manufacturing, and transport equipment manufacturing sectors are hit hardest, with losses up to 11.8%. Moreover, we find a large geographical disparity in losses, with some small islands developing states and low-income economies suffering the largest relative trade losses. We find a clear negative impact of COVID-19 related business and public transport closures on country-wide exports. Overall, we show how real-time indicators of economic activity can support governments and international organisations in economic recovery efforts and allocate funds to the hardest hit economies and sectors.

The socio-economic determinants of the coronavirus disease (COVID-19) pandemic
Viktor Stojkoski,Zoran Utkovski,Petar Jolakoski,Dragan Tevdovski,Ljupco Kocarev

The magnitude of the coronavirus disease (COVID-19) pandemic has an enormous impact on the social life and the economic activities in almost every country in the world. Besides the biological and epidemiological factors, a multitude of social and economic criteria also govern the extent of the coronavirus disease spread in the population. Consequently, there is an active debate regarding the critical socio-economic determinants that contribute to the impact of the resulting pandemic. In this paper, we contribute towards the resolution of the debate by leveraging Bayesian model averaging techniques and country level data to investigate the potential of 30 determinants, describing a diverse set of socio-economic characteristics, in explaining the outcome of the first wave of the coronavirus pandemic. We show that the true empirical model behind the coronavirus outcome is constituted only of few determinants, but the extent to which each determinant is able to provide a credible explanation varies between countries due to their heterogeneous socio-economic characteristics. To understand the relationship between the potential determinants in the specification of the true model, we develop the coronavirus determinants Jointness space. The obtained map acts as a bridge between theoretical investigations and empirical observations, and offers an alternate view for the joint importance of the socio-economic determinants when used for developing policies aimed at preventing future epidemic crises.

What About India's MSME Sector: COVID-19 Pandemic and Indian MSME Sector Outlook
Singh, Anukarsh
This paper talks about impact of COVID-19 induced triple crisis (supply chain, demand chain and labor disruption) on India's Micro, Small, and Medium Enterprises, which is one of the key driver of Indian Economy. MSME's are the backbone of the economy employing more than 11.10 crore workers in non-agricultural activities across country, and accounts for about half of India's exports. On the background of health emergency, the MSME units are in a distressing situation as severely constrained demand has contracted their revenue. The pandemic further exacerbate myriad of problems to the sensitive MSME sector as their liquidity comes from daily demand for their product, and they don't have huge cash reserves. With sustainability of MSMEs at stake the prospects of economic development of India presents a very gloomy picture considering MSMEs contribute about 30-35% to the GDP. Their closure could lead to a structural problem in economy while widening the inequality gap. The aim of study is to assess the impact of demand, supply and liquidity shock inflicted by corona virus on IndiaĆ¢€™s fragile MSME sector while suggesting recovery measures to the government.

When Local Governments' Stay-at-Home Orders Meet the White House's "Opening Up America Again"
Reza Mousavi,Bin Gu

On April 16th, The White House launched "Opening up America Again" (OuAA) campaign while many U.S. counties had stay-at-home orders in place. We created a panel data set of 1,563 U.S. counties to study the impact of U.S. counties' stay-at-home orders on community mobility before and after The White House's campaign to reopen the country. Our results suggest that before the OuAA campaign stay-at-home orders brought down time spent in retail and recreation businesses by about 27% for typical conservative and liberal counties. However, after the launch of OuAA campaign, the time spent at retail and recreational businesses in a typical conservative county increased significantly more than in liberal counties (15% increase in a typical conservative county Vs. 9% increase in a typical liberal county). We also found that in conservative counties with stay-at-home orders in place, time spent at retail and recreational businesses increased less than that of conservative counties without stay-at-home orders. These findings illuminate to what extent residents' political ideology could determine to what extent they follow local orders and to what extent the White House's OuAA campaign polarized the obedience between liberal and conservative counties. The silver lining in our study is that even when the federal government was reopening the country, the local authorities that enforced stay-at-home restrictions were to some extent effective.