Publications
Arison School of Business

People frequently compete with one another for awards, benefits, contracts, positions, or roles. One of the regulatory challenges in these contexts lies in preventing people from making dishonest claims to win such competitions. Honesty pledges, asking people to commit to ethical behavior ex ante, have been found to reduce cheating under non-competitive settings (when rewards were given based on individual reports only). However, as people behave differently under competitive settings, it is unclear whether honesty pledges could be effective and recommended in such situations as well. In four experiments, we apply honesty pledges to competitive and non-competitive settings, finding that pledges remain effective in reducing cheating behavior under competitive contexts (Studies 1–4). Moreover, this effect is not crowded out if a sanction (fine) is added to the honesty pledge (Study 2). Honesty pledges are also effective among people who tend to cheat more, due to low or overestimated task-related ability (Study 2) or due to high competitiveness (Study 3). Additionally, people's estimations regarding others' cheating behavior explain why pledges accompanied by descriptive honesty norms affect cheating behavior (Study 3). Lastly, even in high-stakes competitive environments that demonstrably increased dishonesty, honesty pledges remained effective in reducing dishonesty (Study 4). These findings demonstrate that honesty pledges can serve as effective non-coercive regulatory instruments to reduce dishonesty in competitive environments, offering advantages over traditional enforcement mechanisms while remaining effective even among individuals most prone to cheating and under high-stakes conditions, with important implications for organizational policy design and regulatory approaches.

Regulation & Governance

This study investigates whether investors can reap economic benefits from analyzing differences in analyst quality. Although high-quality analysts’ average forecast is more accurate than the consensus forecast for firms with a large analyst following, the benefits of using high-quality analysts’ average forecast are not economically significant. In contrast, the value of analyst quality differentiation exists in the second moment of forecasts. High-quality analysts’ forecast dispersion gives investors an advantage in dealing with uncertainty by predicting return volatility and providing opportunities for economically significant returns using straddle strategies and the PEAD investment strategy.

Management Science

Regulators often delegate monitoring to local supervisors, which can improve information collection, but can also lead to agency problems and capture. We document that following the closure of a US bank regulator’s field offices, the banks they previously supervised actively increased their risk of failure by distributing cash, increasing leverage, and lending more than similar banks at the same time and place. Supervisor proximity is a channel through which these effects operate. Our findings suggest that local supervision is an important part of regulation, as it facilitates collection of information imperfectly reflected in reported measures, and that switching from onsite to offsite supervision can increase bank risk.

Manish Jha, Hongyi Liu, and Asaf Manela (forthcoming), Natural Disaster Effects on Popular Sentiment Toward Finance, Journal of Financial and Quantitative Analysis.

We examine the impact of filing lag on price formation. The filing lag is defined as the number of days between the event and filing dates of unanticipated 8-K reports. Consistent with the theoretical models of Hirshleifer et al. (1994) and Brunnermeier (2005) we find that the reporting lag is associated with information leakage which allows informed traders to trade strategically – “buy on the news sell on the rumor”, and consequently the longer the filing lag the less informative the news becomes at the filing date. Our results indicate that informed investors learn quite immediately about the news as evident by the enhanced trading around the event date. Finally, the economic impact of information leakage is quite significant and increases with the filing lag.

This study investigates whether investors can reap economic benefits from analyzing differences in analyst quality. Although high-quality analysts’ average forecast is more accurate than the consensus forecast for firms with a large analyst following, the benefits of using high-quality analysts’ average forecast are not economically significant. In contrast, the value of analyst quality differentiation exists in the second moment of forecasts. High-quality analysts’ forecast dispersion gives investors an advantage in dealing with uncertainty by predicting return volatility and providing opportunities for economically significant returns using straddle strategies and the PEAD investment strategy.

Management Science

This paper shows that investments based on deep learning signals extract profitability from difficult-toarbitrage stocks and during high limits-to-arbitrage market states. In particular, excluding microcaps, distressed stocks, or episodes of high market volatility considerably attenuates profitability. Machine learning-based performance further deteriorates in the presence of reasonable trading costs due to high turnover and extreme positions in the tangency portfolio implied by the pricing kernel. Despite their opaque nature, machine learning methods successfully identify mispriced stocks consistent with most anomalies. Beyond economic restrictions, deep learning signals are profitable in long positions and recent years and command low downside risk.

Integrating Factor Models – Summary

The community of financial economists has allocated considerable resources to understand the forces that drive stock returns in the cross section and the time series.
The cross section is about why Apple delivers, on average, different returns from Google, Facebook (Meta), or Amazon. The time series is about why the average return of Netflix nowadays is markedly different from that when it just got listed for trading on Wall Street. Clearly, the ambition is to go beyond these FAANG stocks and explain return dynamics for major US equities throughout a long enough period.
As the quest for forces underlying stock return dynamics is vast, there is, obviously, a long list of candidate models vying for our attention. When an economic agent is confronted with competing models, a useful toolkit would be to run a horse race among candidate models and essentially pick the winning beast. Such a model selection approach, while easy-going and tractable, leaves much to be desired. For instance, perhaps the runner up has meaningful insights, incremental to the winner. Hence, why not letting multiple horses express their minds, uninterrupted?
One reason is complexity. Model combination (or letting multiple horses argue) is not an easy going stuff analytically or conceptually. The challenge intensifies when model weights must be computed for a vast universe (exceeding 52 million) of models.

"Integrating Factor Models" derives and applies an analytical Bayesian framework for addressing model combination in asset pricing. The probability that a model describes stock return dynamics is formulated. Asset pricing inferences are then based on a composite model that integrates over competing models weighted by their probabilities.
From an investment perspective, it would be useful to follow the guidance of the integrated model. For one, it uniformly outperforms plausible benchmarks. Moreover, it considerably tempers the downside risk and the volatility of stock investing (ex post). The integrated model also identifies potent determinants of stock return dynamics. As competing asset pricing models disagree about the magnitude of expected returns, equities are perceived considerably riskier (ex-ante) than the impression that would obtain from merely relying on sample estimates. The disagreement spans all return components, namely, risk, risk premium, and mispricing.

Avramov, Doron, Chordia, Tarun, Jostova, Gergana, and Alexander Philipov, The Distress Anomaly is Deeper than you Think: Evidence from Stocks and Bonds, Conditionally Accepted, Review of Finance.

We address a key theoretical issue in the literature of dominant coalitions by explaining why, contrary to conventional wisdom, we observe the emergence of different coalitions under identical equity holdings of shareholders. Shifting the focus from exploring drivers of dominant coalition configurations in isolation (e.g., equity holdings), we expand on a relational perspective to explore how relational ties (soft power) among family shareholders interplay with equity holdings (hard power) in generating individual effective power to influence decision-making in the family firm. Drawing from and expanding on a cooperative game theory approach (Shapley, 1953; Myerson, 1977), this paper breaks new theoretical ground by providing insights into why and how the formation of relational ties (and lack thereof) among family shareholders affects the distribution of effective power in decision-making processes, over and beyond the share in equity holdings. Our work trains a micro-foundation lens on the study of dominant coalitions by disentangling and assessing individual effective power in coalitions of shareholders in family firms. We further propose a new perspective and a formal modeling to explain and measure why and how relational ties among members shape their effective power to influence decision-making, thereby shedding light on why and how members participate in different coalitional configurations. Finally, we contribute to the literature on ownership structure by promoting a comprehensive perspective that incorporates both equity holdings and relational ties among family shareholders.

המאמר מתקן תוצאה שהיא מרכזית בפרזידנשיאל אדרס של ג'ון קוקרון (ורבים אחרים) בהקשר של predictability ומספק תיקון לאמד הרגרסיה של תשואת השוק על ה-dividend price ratio. אנחנו מספקים הרחבה לתוצאה חשובה של רוב סטמבאו מ-1999 שנותנת תיקון ללא נתונים חופפים. התוצאה שלנו מרחיבה ל-overlapping observations. עשרות ואולי יותר מאמרים טוענים שבעוד שבטווח הקצר לא ניתן לצפות את השוק, הרי שבטווח הארוך השונות המוסברת גבוהה. על זה נבנו תילי תילים של תיאוריות ופרקטיקות. אנחנו מראים שיש הטיה קשה כי אפקטיווית אם הרגרסור הוא מאוד persistent (כמו למשל ה- dividend price ratio) הרי שגם אם נעשה שימוש בתצפיות חופפות חודשיות למשל, אבל לאופק של 5 שנים, ואם יש לך למשל 60 שנים של נתונים, בסופו של יום אין לך הרבה יותר מאשר 60/5=12 תצפיות. כשיש מעט תצפיות קיימת בעיה של bias. היה ידוע שאולי יש בעיה, לא היה ידוע איך לתקן. עכשיו יש נוסחה פשוטה יחסית לתיקון. התמונה למטה מראה את הביטא של השוק על ה- dividend price ratioכפונקציה של האופק ללא תיקון (אדום) ועם התיקון (שחור).

בחלק השני של המאמר אנחנו מראים כי האמד של Newey West (18000 ציטוטים בגוגל..) לסטיית התקן של הביתא מוטה מטה. שוב, היה ידוע עקרונית, מסימולציות, ללא נוסחת תיקון. ההטיה באמד שונות הרגרסור כלפי מטה גורמת להטיה למעלה ב-t statistics. כלומר מה שנראה סיגניפיקנטי במאות מאמרים שעושים שימוש ב-Newey West אולי איננו כזה אם הרגרסור קרוב ליוניט רוט.

אחד הדברים שמושכים את תחום המחקר בשיווק הוא שבחלוף השנים משתנה המציאות כך שמעת לעת התעשייה והאקדמיה ניצבות בפני מערך חדש בעיות שונות שלא היו מוכרות או לא רלוונטיות שנים ספורות קודם לכן. כך למשל בעבר הלא רחוק לא נהגנו לשקוע בתוך הטלפון החכם או אפילו המחשב הנייד תוך כדי תנועה כמו שאנו נוהגים היום: אנו רוכשים, קוראים מבצעים חישובים ומקבלים החלטות מול מסכים שונים תוך כדי תנועה ברכבות אוטובוסים מוניות וכדומה. המחקר הזה עוסק בשאלה האם כיצד ומדוע תחושה של מהירות משפיעה על קבלת ההחלטות והלך הרוח של אנשים. תוצאות משבעה ניסויים מעידות על אפקט של מהירות על קבלת החלטות והתנהגות, כאשר התחושה של תנועה במהירות מהירה יותר (לעומת איטית יותר) גורמת לחשיבה מופשטת יותר (לעומת קונקרטית), המעצבת את העדפות הצרכן, בחירותיו והתנהגותו. אפקט זה בא לידי ביטוי כאשר אנשים חווים מהירות באמצעות הדמיית תנועה ובתנועה אמיתית ברכבות נוסעים , באמצעות מגוון משימות, הכוללות בחירה בין משרות והעדפות למוצרים שונים. בבחינה שלנו את המנגנון האחראי לתופעה, אנו מוצאים כי אנשים שחווים מהירות גבוהה יותר מאמצים חשיבה מופשטת יותר וכי קיימת אסוציאציה מובנית בין מהירות לאבסטרקטיות (בהזדמנות אחרת ניכנס לסיבות מה "מדליק" את המנגנון הזה).
ממצאים מניסוי שדה בפייסבוק מצביעים על כך שפרסומות בהן יש התאמה בין מהירות הרקע של המודעה והטקסט המוצג במודעה (מופשט או קונקרטי) מביאות למעורבות גבוהה יותר של הצרכנים.
גורמים שיכולים להשפיע על הלך הרוח (כגון זמן, מרחק, קלות, התמצאות במרחב) נשללים כהסברים חלופיים אפשריים. בניסויים שנפלו בחדר העריכה התברר שאנשים נוטים להעדיף סיכונים במהירות גבוהה והם מהווים את מחקר ההמשך (היחס בין נטילת סיכון ומהירות תנועה) שאנו בעיצומו.

שיווק הוא תחום מרובה שיטות בעלות אופי מאוד שונה: בצד ניתוח נתונים בעזרת מודלים (observational data), נמצאות שיטות ניסוייות במעבדה (experimental design) או בשדה (field experiments) ושיטות ביניים כמו natural experiment. בצד ניתוח אנליטי נמצאות גם שיטות סימולציה ואפילו גישות איכותניות ושיטות של meta-analysis. בשנים האחרונות נוצרה מגמה של חוקרים שמשלבים שיטות שונות במאמר אחד: חולשת שיטה אחת נפתרת בעזרת יתרון של שיטה אחרת. למשל ניסוי מעבדה מאפשר להוכיח סיבתיות יותר מכול שיטה אחרת, אבל גודל האפקט נשאר לרוב בסימן שאלה. ניתוח נתונים מצליח להעריך את האפקט האמיתי, אבל חשוף לבעיות אנדוגניות. המאמר מנסה לתת קווים מנחים למאמר רב שיטות, היתרונות והחסרונות שלו וגם איך נכון לשפוט אותו.

Conventional wisdom suggests that network effects should drive faster market growth due to the bandwagon effect. However, as we showed, network externalities may also create an initial slowdown effect on growth because potential customers wait for early adopters, who provide them with more utility, before they adopt. We explored the financial implications of network externalities by taking the entire network process into account. Using an agent-based as well as an aggregate-level model, and separating network effects from word of mouth, we demonstrated  that network externalities have a substantial chilling effect on the net present value  associated with new products. This effect may occur not only in a competitive framework, such as a competing standards scenario, but also in the absence of competition. Drawing on the collective action literature in order to relate network effects to individual consumer threshold levels, we find that the chilling effect is stronger with a small variability in the threshold distribution, and is especially affected by the process early on in the product life cycle.

פורסם ב-Proceedings of the National Academy of Sciences

תקציר המאמר:

Social distancing reduces the transmission of COVID-19 and other airborne diseases. To test different ways to increase social distancing, we conducted a field experiment at a major U.S. airport using a system that presented color-coded visual indicators on crowdedness. We complemented those visual indicators with nudges commonly used to increase COVID-19 preventive behaviors. Analyzing data from 57,146 travelers, we find that visual indicators and nudges significantly affected social distancing. Introducing visual indicators increased the share of travelers practicing social distancing, and this positive effect was enhanced by introducing nudges focused on personal benefits (“protect yourself”) and public benefits (“protect others”). Conversely, an authoritative nudge (“don’t break CDC COVID-19 guidelines”) did not change social distancing behavior. Our results demonstrate that visual indicators and informed nudges can boost social distancing and potentially curb the spread of contagious diseases.

המאמר מנתח איך האופן בו חברות רב לאומיות מפתחות פטנטים משפיע על רווחיותן. הספרות מראה שצוותי פיתוח בינלאומיים צפויים ליצור פטנטים שהם יותר בעלי ערך, אך עלות פיתוח זו יקרה יותר. במקביל מראה הספרות שצוותי פיתוח הכוללים ממציאים ממספר חברות צפויים ליצור פטנטים שהם יותר בעלי ערך, אך עלויות העסקה (transaction costs) של פיתוחים כאלו גבוהה. לפיכך, ההשפעה של צוותי פיתוח בינלאומיים וצוותי פיתוח משולבים ממספר חברות על הרווחיות של חברות רב לאומיות אינה ברורה. המאמר הנוכחי משלב את שני זרמי הספרות ומראה שצוותי פיתוח בינלאומיים שכוללים ממציאים מתוך החברה בלבד וכן צוותי פיתוח משולבים ממספר חברות המרוכזים במדינה אחת משפיעים חיובית על הרווחיות של חברות רב לאומיות. מנגד, צוותי פיתוח בינלאומיים הכוללים ממציאים ממספר חברות וצוותי פיתוח מקומיים הכוללים רק ממציאים מתוך החברה בלבד משפיעים שלילית על הרווחיות של חברות אלו. הטעון המרכזי הוא שאסטרטגיות פיתוח פטנטים המשלבת ביזור באחד המימדים (בינלאומי/רב-חברתי) ומיקוד במימד השני (מקומי/פנימי לחברה) יותר רווחיות מאסטרטגיות פיתוח פטנטים שהן מבוזרות או ממוקדות בלבד.

We examine the impact of filing lag on price formation. The filing lag is defined as the number of days between the event and filing dates of unanticipated 8-K reports. Consistent with the theoretical models of Hirshleifer et al. (1994) and Brunnermeier (2005) we find that the reporting lag is associated with information leakage which allows informed traders to trade strategically – “buy on the news sell on the rumor”, and consequently the longer the filing lag the less informative the news becomes at the filing date. Our results indicate that informed investors learn quite immediately about the news as evident by the enhanced trading around the event date. Finally, the economic impact of information leakage is quite significant and increases with the filing lag.

We study a unique setting involving fraudulent news in financial markets that culminates in a Securities and Exchange Commission (SEC) investigation of shared financial news networks. We use this setting to document the effects of market manipulation on consumers and producers of information. The SEC investigation revealed the presence of fraud to market participants, which we show led to a 4.1% decrease in retail trading volume in response to all news, including legitimate news, from the social media platforms. The effects are even stronger for small, opaque firms who experience a 23.5% decline in trading volume and a 1.3% reduction in price volatility, relative to a baseline volatility of 7.2%, following the SEC announcement. The results highlight the indirect consequences of fraud and its spillover effects that reduce the social network’s impact on information dissemination. We interpret these results through the lens of models of trust and the importance of social capital for financial activity, and attempt to address alternative explanations.

In many joint consumption decisions, such as choosing a restaurant or a movie to watch together, one party often communicates to the other that they do not have any particular preference among the options (e.g., “I have no preference” or “I’m fine with any option”). Despite their prevalence, little is known about how communications of no preference impact joint decision making and the consumption experience. Do consumers take the other party’s indifference at face value? Does the decision become easier to make without one party’s preference to incorporate? How will such communications ultimately impact consumption and social utility? In a series of six studies using both hypothetical and real joint consumption decisions, we find that recipients of no preference communication infer that the co-consumer (i.e., the person communicating having no preferences) actually does have preferences, but is not disclosing them. These perceptions of undisclosed preferences increase the decision makers’ decision difficulty and cause them to like the co-consumer less. Further, we find that decision makers intuit that the co-consumer’s (undisclosed) preferences are probably dissimilar to their own, which leads them to choose an option they like less, and ultimately decreases their enjoyment. Interestingly, these negative effects are not anticipated by the party who communicates having no preference. 

Conventional wisdom suggests that network effects should drive faster market growth due to the bandwagon effect. However, as we showed, network externalities may also create an initial slowdown effect on growth because potential customers wait for early adopters, who provide them with more utility, before they adopt. We explored the financial implications of network externalities by taking the entire network process into account. Using an agent-based as well as an aggregate-level model, and separating network effects from word of mouth, we demonstrated  that network externalities have a substantial chilling effect on the net present value  associated with new products. This effect may occur not only in a competitive framework, such as a competing standards scenario, but also in the absence of competition. Drawing on the collective action literature in order to relate network effects to individual consumer threshold levels, we find that the chilling effect is stronger with a small variability in the threshold distribution, and is especially affected by the process early on in the product life cycle.