Research articles for the 2021-02-18

A Core of E-Commerce Customer Experience based on Conversational Data using Network Text Methodology
Andry Alamsyah,Nurlisa Laksmiani,Lies Anisa Rahimi

E-commerce provides an efficient and effective way to exchange goods between sellers and customers. E-commerce has been a popular method for doing business, because of its simplicity of having commerce activity transparently available, including customer voice and opinion about their own experience. Those experiences can be a great benefit to understand customer experience comprehensively, both for sellers and future customers. This paper applies to e-commerces and customers in Indonesia. Many Indonesian customers expressed their voice to open social network services such as Twitter and Facebook, where a large proportion of data is in the form of conversational data. By understanding customer behavior through open social network service, we can have descriptions about the e-commerce services level in Indonesia. Thus, it is related to the government's effort to improve the Indonesian digital economy ecosystem. A method for finding core topics in large-scale internet unstructured text data is needed, where the method should be fast but sufficiently accurate. Processing large-scale data is not a straightforward job, it often needs special skills of people and complex software and hardware computer system. We propose a fast methodology of text mining methods based on frequently appeared words and their word association to form network text methodology. This method is adapted from Social Network Analysis by the model relationships between words instead of actors.

A New Take on Voice: The Influence of BlackRock’s 'Dear CEO' Letters
Pawliczek, Andrea,Skinner, A. Nicole,Wellman, Laura
We examine whether broad-based public engagement by institutional investors influences the behavior of portfolio firms. We investigate this question in the context of BlackRock’s annual “Dear CEO” letter, which in recent years has called for portfolio firms to acknowledge and quantify the impact of environmental and regulatory factors on their firms. We find that portfolio firms’ disclosures reflect topics similar to those discussed in the letters during the post-letter period, controlling for a variety of firm and disclosure characteristics, and the occurrence of private engagements. Moreover, BlackRock appears to value these additional disclosures, as it more often votes with management on shareholder proposals during subsequent annual shareholder meetings. Finally, motivated by BlackRock’s attempts to mobilize firms toward its specific policy recommendations, we also provide some evidence that firms’ lobbying efforts become more aligned with the issues highlighted in the letter during the post-letter period, especially when firms’ share BlackRock’s policy preferences ex ante. Taken together, our evidence suggests that portfolio firms are responsive to BlackRock’s public engagement efforts.

A maximum entropy model of bounded rational decision-making with prior beliefs and market feedback
Benjamin Patrick Evans,Mikhail Prokopenko

Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an information-theoretic approach to the inference of agent decisions under Smithian competition. The model explicitly captures the boundedness of agents (limited in their information-processing capacity) as the cost of information acquisition for expanding their prior beliefs. The expansion is measured as the Kullblack-Leibler divergence between posterior decisions and prior beliefs. When information acquisition is free, the \textit{homo economicus} agent is recovered, while in cases when information acquisition becomes costly, agents instead revert to their prior beliefs. The maximum entropy principle is used to infer least-biased decisions, based upon the notion of Smithian competition formalised within the Quantal Response Statistical Equilibrium framework. The incorporation of prior beliefs into such a framework allowed us to systematically explore the effects of prior beliefs on decision-making, in the presence of market feedback. We verified the proposed model using Australian housing market data, showing how the incorporation of prior knowledge alters the resulting agent decisions. Specifically, it allowed for the separation (and analysis) of past beliefs and utility maximisation behaviour of the agent.

Causal Campbell-Goodhart's law and Reinforcement Learning
Hal Ashton

Campbell-Goodhart's law relates to the causal inference error whereby decision-making agents aim to influence variables which are correlated to their goal objective but do not reliably cause it. This is a well known error in Economics and Political Science but not widely labelled in Artificial Intelligence research. Through a simple example, we show how off-the-shelf deep Reinforcement Learning (RL) algorithms are not necessarily immune to this cognitive error. The off-policy learning method is tricked, whilst the on-policy method is not. The practical implication is that naive application of RL to complex real life problems can result in the same types of policy errors that humans make. Great care should be taken around understanding the causal model that underpins a solution derived from Reinforcement Learning.

Corporate Social Responsibility and Corporate Governance: A cognitive approach
Rania Béji,Ouidad Yousfi,Abdelwahed Omri

This chapter aims to critically review the existing literature on the relationship between corporate social responsibility (CSR) and corporate governance features. Drawn on management and corporate governance theories, we develop a theoretical model that makes explicit the links between board diversity, CSR committees' attributes, CSR and financial performance. Particularly, we show that focusing on the cognitive and demographic characteristics of board members could provide more insights on the link between corporate governance and CSR. We also highlight how the functioning and the composition of CSR committees, could be valuable to better understand the relationship between corporate governance and CSR.

Customer Perception on Alternative Delivery Channel (ADC) of Banks in Bangladesh
sadique, shahed,Shohrowardhy, Hossain Shahid,Hassan, H.M. Kamrul
This paper aims at understanding the level of customer’s perception on alternative delivery channel of different commercial schedule banks of Bangladesh. Considering the significant development in technology and for sustainability, banking industry in Bangladesh has expanded banking operation through offering different ADCs to attract customers which are ultimately changing the perception of customers in the long run. Based on this reality, data were collected from a survey and a usable sample of 134 was taken for analysis. KAPPA test and multiple regression model is used to analyze the overall consistency of respondent’s responses and measurement of consumers’ perception. The results of the survey show that visibility, availability, self-security, confidential transaction ability, easiness and simplicity in the procedure of ADC makes it more attractive to consumer. The findings also suggest that security of physical establishment of ADC is vital though banks have given less importance to it. From the study, it is found that in order to change perception and to attract more users to banking; it is not going to be enough to make the system easy to interact with. Banks should develop more secured and private alternative delivery channels that will be reliable to their customers. Thus, management attention might be effectively focused on the development of such sectors that have been properly identified in this research.

Desarrollo teórico y evidencia empírica de la política de dividendos: una revisión de literatura en Iberoamérica (Theorical Development and Empirical Evidence of Dividend Policy: A Review of Ibero-American Literature)
Aguirre-Ríos, Albeiro,Sepúlveda-Aguirre, Jovany,Quirama-Estrada, Uvenny,Garcés-Giraldo, Luis Fernando
Spanish Abstract: La política de dividendos en una organización está relacionada con las decisiones de inversión y endeudamiento, claves para su permanencia en el tiempo. El objetivo de este documento es examinar la evidencia empírica y desarrollo teórico en políticas de dividendos a partir de una revisión de literatura. La metodología de la revisión fue la búsqueda en las bases de datos Scopus, Ebsco, Redalyc y Google Académico, a partir de las palabras clave y teniendo en cuenta estudios realizados en Iberoamérica. El principal hallazgo obtenido es que la mayoría de los estudios están a favor del enfoque de la relevancia de la política de dividendos mediante el uso de modelos cuantitativos enfocados a identificar sus determinantes. Se concluye que la estructura teórica del pago de dividendos se fortaleció con el estudio de las imperfecciones de los mercados financieros y que las teorías más contrastadas en la región corresponden a las del enfoque de la relevancia, en particular, costos de agencia y valor informativo de los dividendos. Los países donde se concentran la mayoría de las investigaciones son Brasil, Chile y España.English Abstract: The dividend policy of an organization is related to their investment and credit decisions, which are key for their permanence over time. This paper aims to review the available literature on empirical evidence and theoretical developments of dividend policy. The methodology implemented here was a search in Scopus, Ebsco, Redalyc, and Google Scholar with specific keywords and limited to studies conducted in Ibero-America. The first finding is that most studies support the dividend relevance theory by using quantitative models aimed at identifying its determinants. We conclude that the theoretical structure of dividend payment was strengthened by research into the imperfections of financial markets, and the theories most commonly addressed in this region are those in the relevance approach; in particular, agency costs and the informational value of dividends. Finally, Brazil, Chile, and Spain concentrate most studies in this field in Ibero-America.

Dynamic Asset (Mis)Pricing: Build-up vs. Resolution Anomalies
van Binsbergen, Jules H.,Boons, Martijn,Opp, Christian C.,Tamoni, Andrea
We classify asset pricing anomalies into those that exacerbate existing mispricing (build-up anomalies) and those that resolve it (resolution anomalies). To this end, we compute the dynamics of price wedges for a large number of well-known asset pricing anomalies (the factor zoo). We find that several prominent anomalies like momentum and profitability push prices even further away from fundamental value. Generally, this mispricing build-up is faster than the subsequent resolution, suggesting the potential for material real economics consequences. Our results suggest that financial intermediaries chasing build-up anomalies in fact negatively affect price efficiency and associated real capital allocation.

Dynamics, behaviours, and anomaly persistence in cryptocurrencies and equities surrounding COVID-19
Nick James

This paper uses new and recently introduced methodologies to study the similarity in the dynamics and behaviours of cryptocurrencies and equities surrounding the COVID-19 pandemic. We study two collections; 45 cryptocurrencies and 72 equities, both independently and in conjunction. First, we examine the evolution of cryptocurrency and equity market dynamics, with a particular focus on their change during the COVID-19 pandemic. We demonstrate markedly more similar dynamics during times of crisis. Next, we apply recently introduced methods to contrast trajectories, erratic behaviours, and extreme values among the two multivariate time series. Finally, we introduce a new framework for determining the persistence of market anomalies over time. Surprisingly, we find that although cryptocurrencies exhibit stronger collective dynamics and correlation in all market conditions, equities behave more similarly in their trajectories, extremes, and show greater persistence in anomalies over time.

Foreign Investment under the Spotlight of Home Media
Liu, Wai-Man,Yu, Jing,Zhang, Bohui
Foreign investors’ information disadvantage is often viewed as a key impediment to their investment. This study questions whether foreign investors’ home media mitigates this information barrier by investigating the relation between U.S. mutual fund ownership and U.S. media coverage of local stocks in their host countries. Using a large sample of 38 host countries, we document a positive association between U.S. mutual fund ownership in a local stock and the coverage of U.S. major news providers on that stock. We find that home media-covered stocks incur lower information acquisition costs and gain greater investor awareness from U.S. investors. The home media effect is most salient in host countries with low quality information environments, supporting a novel home media effect that foreign investors tend to rely on their home market media coverage as an information source. The home media effect helps explain the prominent international finance anomaly regarding the dependence of firm returns on home and foreign market factors.

Hierarchical random effects model for insurance pricing of vehicles belonging to a fleet
Desjardins, Denise,Dionne, Georges,Lu, Yang
We propose a hierarchical random effect model for the posterior insurance ratemaking of vehicles belonging to a fleet by allowing random effects for fleet, vehicle, and time. The model is an alternative to the gamma-Dirichlet model of Angers et al (2018), which does not allow for a closed form posterior ratemaking formula. Our theoretical extension derives a simple and tractable closed form ratemaking formula based on a hierarchical random effects specification. We estimate the corresponding econometric model and compute insurance premiums in relation to the past experience of both the vehicle and the fleet. Our econometric model can also be applied to any other dynamic count modeling application with random individual, time, and common effects, such as labor contracting, chirurgical accidents, or any other random event implying principals and many agents.

Integrating prediction in mean-variance portfolio optimization
Andrew Butler,Roy H. Kwon

Many problems in quantitative finance involve both predictive forecasting and decision-based optimization. Traditionally, predictive models are optimized with unique prediction-based objectives and constraints, and are therefore unaware of how those predictions will ultimately be used in the context of their final decision-based optimization. We present a stochastic optimization framework for integrating regression based predictive models in a mean-variance portfolio optimization setting. Closed-form analytical solutions are provided for the unconstrained and equality constrained case. For the general inequality constrained case, we make use of recent advances in neural-network architecture for efficient optimization of batch quadratic-programs. To our knowledge, this is the first rigorous study of integrating prediction in a mean-variance portfolio optimization setting. We present several historical simulations using global futures data and demonstrate the benefits of the integrated approach in comparison to the decoupled alternative.

Italia 3 Trim 2020: Pil, Debito & Co (Italy 3Q 2020: GDP, Debt & Co.)
Mazziero, Maurizio,Lawford, Andrew,Serafini, Gabriele
Italian Abstract: Ricerca sulla situazione economica italiana basata sui dati economici ufficiali; vengono analizzati e confrontati con il passato il debito pubblico, le riserve ufficiali, il PIL, l'inflazione e la disoccupazione. English Abstract: Research into the state of the Italian economy based on official economic data; the current Sovereign Debt, Official Reserves, GDP, Inflation and Unemployment situation is presented and and compared with the past.

Price mediated contagion through capital ratio requirements with VWAP liquidation prices
Tathagata Banerjee,Zachary Feinstein

We develop a framework for price-mediated contagion in financial systems where banks are forced to liquidate assets to satisfy a risk-weight based capital adequacy requirement. In constructing this modeling framework, we introduce a two-tier pricing structure: the volume weighted average price that is obtained by any bank liquidating assets and the terminal mark-to-market price used to account for all assets held at the end of the clearing process. We consider the case of multiple illiquid assets and develop conditions for the existence and uniqueness of clearing prices. We provide a closed-form representation for the sensitivity of these clearing prices to the system parameters, and use this result to quantify: (1) the cost of regulation, in stress scenarios, faced by the system as a whole and the individual banks, and (2) the value of providing bailouts to consider when such notions are financially advisable. Numerical case studies are provided to study the application of this model to data.

Salud financiera en créditos hipotecarios mexicanos [The Financial Health of Mexican Mortgage Loans]
Olivares-Aguayo, Héctor Alonso,Méndez-Molina, Maivelin,Madrigal-Castillo, Eduardo
Spanish Abstract: Si se desea adquirir un patrimonio familiar, la adquisición de crédito hipotecario conlleva una gran responsabilidad y un análisis previo, , pues la persona debe tener muy claras las condiciones y los factores que influyen cuando las entidades hipotecarias privadas, como las instituciones bancarias, o públicas, como el Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT) y el Fondo de la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (FOVISSSTE) le otorguen el crédito. El principal riesgo se presenta en no poder cumplir con el pago delos intereses periódicos debido al bajo salario mensual que percibe el cliente. El objetivo de este artículo es examinar la salud financiera en créditos hipotecarios mexicanos - públicos y privados - a partir de un estudio de mercado con datos reales del 2015. El método empleado fue cuantitativo experimental y la metodología usada fue de amortización con periodicidad de pagos mensuales. El principal hallazgo de esta investigación se dio a través de evidencia empírica, donde se mostró que la población de clase media baja puede tener un alto riesgo de incumplimiento en sus créditos hipotecarios, dado a que su ingreso mensual va desde $2103 MXN hasta $6309 MXN. Por este motivo, la investigación buscó dar a conocer a este tipo de población los factores de riesgo a la hora de adquirir un crédito hipotecario. La conclusión es que únicamente en cuatro escenarios analizados, donde el interés total a pagar es menor al 50 % del valor de la propiedad, el cliente debe destinar al pago de su crédito hipotecario la cantidad de $10 000 MXN que, a marzo de 2015, equivalía aproximadamente a 4.75 salario mínimo vigente en el Distrito Federal (SMVDF).English Abstract: When building a family patrimony, obtaining a mortgage loan takes great responsibility and a previous analysis. Mortgage borrowers should be very clear about the conditions and factors that influence the approval or rejection decisions of private mortgage lenders, such as banking institutions, or public ones; for example, in Mexico, the Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT) and the Fondo de la Vivienda del Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (FOVISSSTE). The main risk is that customers may not be able to pay the periodic interest rate due to their low income. This article aims to examine the financial health of (public and private) Mexican mortgage loans based on a market analysis conducted using real data of 2015. Adopting a quantitative experimental approach, this study implemented a methodology of amortization with periodic monthly installments. The main finding was revealed by empirical evidence, which showed that lower-middle income borrowers may be at a great risk of missing their mortgage payments because their monthly income ranges from MXN $2,103 to MXN $6,309. For this reason, the goal of this article is to raise the awareness of this type of customers about the risk factors they should consider when they request a mortgage loan. In conclusion, in only four of the scenarios analyzed in this article, where the total interest to be paid is under 50% the property value, customers should devote MXN $10,000 to the pay the mortgage. As of March 2015, this amount would be approximately 4.75 times the minimum monthly wage in Mexico’s Federal District.

Supportive 5G infrastructure policies are essential for universal 6G: Evidence from an open-source techno-economic simulation model using remote sensing
Edward J. Oughton,Ashutosh Jha

Work has now begun on the sixth generation of cellular technologies (`6G`) and cost-efficient global broadband coverage is already becoming a key pillar. Indeed, we are still far from providing universal and affordable broadband connectivity, despite this being a key part of the Sustainable Development Goals (Target 9.c). Currently, both Mobile Network Operators and governments still lack independent analysis of the strategies that can help achieve this target with the cellular technologies available (4G and 5G). Therefore, this paper provides quantitative evidence which demonstrates how current 5G policy affects universal broadband, as well as drawing conclusions over how 4G and 5G decisions made now affect future evolution to 6G. Using a method based on an open-source techno-economic codebase, combining remote sensing with least-cost network algorithms, performance analytics are provided for different 4G and 5G universal broadband strategies. As an example, the assessment approach is applied to India, the world`s second-largest mobile market and a country with notoriously high spectrum prices. The results demonstrate the trade-offs between technological decisions. This includes demonstrating how important current infrastructure policy is, particularly given fiber backhaul will be essential for delivering 6G quality of service. We find that by eliminating the spectrum licensing costs, full 5G population coverage can viably be achieved using fiber backhaul. In conclusion, supportive 5G infrastructure policies are essential in providing a superior foundation for evolution to 6G.

Sustainable and Resilient Systems for Intergenerational Justice
Sahar Zandi

Rawls' theory of justice aims at fairness. He does not only think of justice between exiting parties in existing society, but he also thinks of it between generations intergenerational justice problem. Rawls' solution to this problem is the saving principle, and he says that we are responsible for being just with the next generations. Wolf thinks of our responsibility for future generations as a kind of financial debt that we have to pay. He also develops the meaning of "saving" and says that it is not restricted to the monetary one. Wolf extends the definition of "saving" such that it includes investment on behalf of the next generations as well. In this paper, I want to extend the meaning of "saving" to "using the resources for sustainable and resilient systems." By referring to the problem of time, I show that our decision on behalf of the next generations will be rational only if we entirely use the natural resources and wealth to produce sustainable and resilient systems.

The 'Matthew Effect' and Market Concentration: Search Complementarities and Monopsony Power
Fernández-Villaverde, Jesús,Mandelman, Federico,Yu, Yang,Zanetti, Francesco
This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms’ output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality.

The Gender Pay Gap Revisited with Big Data: Do Methodological Choices Matter?
Anthony Strittmatter,Conny Wunsch

The vast majority of existing studies that estimate the average unexplained gender pay gap use unnecessarily restrictive linear versions of the Blinder-Oaxaca decomposition. Using a notably rich and large data set of 1.7 million employees in Switzerland, we investigate how the methodological improvements made possible by such big data affect estimates of the unexplained gender pay gap. We study the sensitivity of the estimates with regard to i) the availability of observationally comparable men and women, ii) model flexibility when controlling for wage determinants, and iii) the choice of different parametric and semi-parametric estimators, including variants that make use of machine learning methods. We find that these three factors matter greatly. Blinder-Oaxaca estimates of the unexplained gender pay gap decline by up to 39\% when we enforce comparability between men and women and use a more flexible specification of the wage equation. Semi-parametric matching yields estimates that when compared with the Blinder-Oaxaca estimates, are up to 50\% smaller and also less sensitive to the way wage determinants are included.

The Information and Liquidity Effects of Mutual Fund Flows: Evidence From International Spillovers
Rakowski, David A.,Diltz, John David,Nguyen, Anh Tuan
We decompose mutual fund flowâ€"driven price pressure into liquidity and information components by measuring the extent to which mutual fund flow-driven trading spills over from the United States (US) to 44 international markets. Our procedure shows that liquidity barriers are greater than information barriers between markets, in that non-US stock returns are more strongly associated with US stock returns than with US-based mutual fund price pressure. By using suitably flow-adjusted non-US returns of cross-listed stocks as instruments for US stock returns in the absence of mutual fund price pressure, our procedure shows that mutual fund flow-driven price pressure varies considerably across different markets, stocks, funds, and types of flows. A simple characterization of some mutual fund flows as “fire sales” fails to capture many sources of variation in the relative proportion of information and liquidity components of fund flows.

The Small World Phenomenon and Network Analysis of ICT Startup Investment in Indonesia and Singapore
Farid Naufal Aslam,Andry Alamsyah

The internet's rapid growth stimulates the emergence of start-up companies based on information technology and telecommunication (ICT) in Indonesia and Singapore. As the number of start-ups and its investor growth, the network of its relationship become larger and complex, but on the other side feel small. Everyone in the ICT start-up investment network can be reached in short steps, led to a phenomenon called small-world phenomenon, a principle that we are all connected by a short chain of relationships. We investigate the pattern of the relationship between a start-up with its investor and the small world characteristics using network analysis methodology. The research is conducted by creating the ICT start-up investment network model of each country and calculate its small-world network properties to see the characteristic of the networks. Then we compare and analyze the result of each network model. The result of this research is to give knowledge about the current condition of ICT start-up investment in Indonesia and Singapore. The research is beneficial for business intelligence purposes to support decision-making related to ICT start-up investment.

The impacts of foreign exchange reserves intervention under the case of capital control in China
This paper studies the impacts of foreign exchange reserves intervention under the economic structures of China that feature capital controls, managed floating exchange rate and partially sterilized intervention. The central bank transacts government bonds to sterilely intervene the foreign exchange market in order to maintain a managed float regime. The results show that under the managed float regime, compared with capital account liberalization, a higher degree of capital controls may increase output and consumption and stabilize exchange rate and foreign exchange reserves in the short term. But under the case of the fixed exchange regime and capital controls, the impacts of full sterilization intervention and non-sterilization intervention are almost the same. Relative to the full floating exchange rate regime, the implementation of a managed floating exchange rate for the China’s central bank may stabilize the fluctuation of the nominal exchange rate, but it may expand the economic fluctuations, fluctuations in the scale of foreign assets held by the central bank and the scale of government bonds held the private.

Time-varying Media Coverage and Stock Returns
Zheng, Hannan
I show that news editors have state-dependent preference for different types of firms. Using the New York Times data and natural language processing techniques, I estimate the loadings of media coverage on eight common features of firms and construct the corresponding editor preference. I find that firms with higher editor preference earn higher returns than those with lower preference on average. It is consistent with the theory that if investors delegate their information selection to news editors, the state-dependent coverage decisions signal risky features and hence related firms are required more risk compensation. This excess return cannot be explained by mainstream risk factors and has an annualized alpha around 12%. Although this excess return is robust among more firms that are out of the scope of news data, it is bound to a short time horizon.

Understanding algorithmic collusion with experience replay
Bingyan Han

In an infinitely repeated pricing game, pricing algorithms based on artificial intelligence (Q-learning) may consistently learn to charge supra-competitive prices even without communication. Although concerns on algorithmic collusion have arisen, little is known on underlying factors. In this work, we experimentally analyze the dynamics of algorithms with three variants of experience replay. Algorithmic collusion still has roots in human preferences. Randomizing experience yields prices close to the static Bertrand equilibrium and higher prices are easily restored by favoring the latest experience. Moreover, relative performance concerns also stabilize the collusion. Finally, we investigate the scenarios with heterogeneous agents and test robustness on various factors.

Widowed Before Retirement: Social Security Benefit Claiming Strategies
Shuart, Amy N.,Weaver, David,Whitman, Kevin
Financial planners should be aware of Social Security program rules unique to widows approaching retirement.This paper examines these rules and their implications for benefit claiming strategies, complementing recent studies on Social Security claiming decisions.