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Leveraging the American Dream: Explaining the Shift Towards Mortgage Debt since the 1970’s
by James Robert Melnick and James Colin Montupet
Abstract
We show that the determinants of mortgage borrowing and other forms of consumer credit differ: borrowers tend to consider asset holdings when taking out a mortgage, but focus on short-term economic expectations when borrowing other consumer credit. We hypothesize that this “mortgage wealth effect” occurs in part due to a borrower’s ability to collateralize real estate assets, and a growing perception of the house as an investment as well as a residence. Further, we propose that this wealth effect contributed to an increase in mortgage debt from the 1970s forward, and that legislative changes and the growth of securitization in the 1990s magnified this effect.
Advisor: Emma Rasiel
The Impact of Sector and Market Variance on Individual Equity Variance
by Haoming Wang
Abstract
This paper investigates how changes in measures of sector and market variance affect equity variance by examining forecasts of equity variance over 1, 5, and 22 day time horizons. These forecasts were generated using heterogeneous autoregressive regressions that included measures of sector and market variance. The results demonstrate that sector and market variance both play an important role in determining equity variance. Further, the inclusion of measures of sector and market variance improves goodness of fit and decreases forecasting errors. These results imply that the inclusion of these measures could improve predictive models of equity variance.
Professor George Tauchen, Faculty Advisor
Does the NBA Encourage Early Entry?
by Griffen Tormey
Abstract
Over the last decade, the number of underclassmen selected in the first round of the NBA Draft has dramatically increased. Even when controlling for performance in college, underclassmen are paid significantly more than college seniors. What is going on here? Isn’t experience a good thing? Groothuis, Hill, and Perri (2007) were the first to argue that the rookie pay scale introduced in 1995 is responsible for the shift in behavior. They use Lazear’s (1998) option value theory as a means of explaining this action. His theory is the result of applying the financial principle of option value to labor economics. As the estimate of a worker’s future production becomes more volatile, his option value increases. In the NBA Draft, early entrants have more option value than college seniors because less information is available about them, and they are less developed. The rookie pay scale sets compensation limits that lower the relative price of rookies. With less money at risk for the same upside potential, teams have an incentive to choose early entrants. This study empirically proves that option value is significant in determining draft order after 1995, and that along with the new rookie compensation structure, it explains the unraveling in the NBA labor market.
Professor Marjorie McElroy, Faculty Advisor
Analyzing and Applying Existing and New Jump Detection Methods for Intraday Stock Data
By William Warren Davis
Abstract
This paper attempts to explore two recent statistics used to identify jumps in stock prices, as well as to propose a modification to one of the statistics to increase its accuracy by adding a second stage with a different estimator of local volatility. After identifying potential jump days, a study of Bristol-Myers Squibb Co. stock was performed, identifying the types of company-specific events that occurred on these days that seemed to cause jumps in the price. Also, the new proposed statistic was found to be more accurate by a using method of changing the significance levels used in each stage, as well as in samples with an extremely high jump frequency.
Professor George Tauchen, Faculty Advisor
Socioeconomic Factors and the Outcomes of Thailand’s Prevention of Mother-To-Child Transmission program (PMTCT)
by Wichsinee Wibulpolprasert
Abstract
Since its implementation in 2001, the national program for Prevention of Mother-To-Child Transmission (PMTCT) in Thailand has been successful in substantially reducing mother-to-child HIV transmission. In order to assess and improve the efficacy of the PMTCT program, it is important to identify relevant socio-demographic and biomedical factors associated with antiretroviral compliance and HIV transmission rates. In this paper, we attempt to measure the associations between province specific socio-demographic characteristics, such as average income, education, average household size, and availability of health care providers, on the antiretroviral compliance rate. Then we measure how the antiretroviral completion rates and other biomedical factors affect the probability of mother-to-child HIV transmission among participants in Thailand’s national PMTCT program. We find that education level, mother’s nationality, family size, prenatal care, and the time the pregnant woman learned of her HIV status statistically affect the probability of completing the antiretroviral regimen. The sex of the infant, prenatal care, and the second antiretroviral regimen statistically affect the transmission rates.
Professor Tracy Falba, Faculty Advisor
Engaging with Malthus: Joseph J. Spengler and Economic Demography
by Thomas Aten
Abstract
This research paper analyzes the development of Joseph J. Spengler’s interpretation of Thomas Robert Malthus’s work through its three stages, first the stage of quantitative analysis, second, the analysis of early American and French thinkers using Malthus as a critical lens, and third, Spengler’s “Restatement and Reappraisal” of Malthusian theory.
Professor E. Roy Weintraub, Faculty Advisor
Does Risk Pay? An Analysis of Short Gamma Trading Strategies and Volatility Forecasting in the Swaptions Market
by Tasha Staer Bollerslev and Michael Scott Kuritzky
Abstract
We evaluate short gamma trading strategies in the interest rate swaptions market from January 4th, 1999 to January 19th, 2007, and test the effectiveness of swaption proprietary forecasted volatility at predicting future realized volatility. We find that swaptions market proprietary forecasted volatility is an effective estimator; there is no risk premium priced into swaption prices and hence short gamma strategies are not profitable. We find that the market on average underprices interest rate swaptions by underestimating forward realized volatility.
Professor Emma Rasiel, Faculty Advisor
How Information from a Strategic Alliance Network Relates to Future Acquisition Performance in the Biotechnology and Pharmaceutical Industries
by Stephen Raymond
Abstract
Acquisitions in the pharmaceutical and biotechnology field have been fueled by a variety of factors ranging from riding strong equity markets to lucid managerial hubris. In all cases, asymmetric information, specifically the moral hazard problem between acquiring and target firms, played large roles in the final value of any acquisition; target firms inherently had better valuations of their worth than acquiring firms. To mitigate this, firms actively engage in learning activities that include forming strategic alliances. Efficient markets will recognize advantageous relationships. This study investigates whether learning effects from strategic alliances helped to remedy this moral hazard problem by investigating how various alliance metrics affected acquiring firms’ short-term cumulative abnormal returns and daily stock return volatility for acquisitions in 1998-2004. Evidence was discovered that acquiring firms that were more central figures in an alliance network and engaged in a prior alliance with their target company tended to realize greater short-term cumulative abnormal stock returns. In addition, more central firms tended to realize less daily stock return volatility on the date of the acquisition. In contrast, firms with more third-party shared alliances tended to realize less short-term cumulative abnormal stock returns and greater daily stock return volatility.
Professor Henry Grabowski, Faculty Advisor
