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Category Archives: 2008

Analyzing and Applying Existing and New Jump Detection Methods for Intraday Stock Data

By William Warren Davis

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.

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Advisor: George Tauchen

Socioeconomic Factors and the Outcomes of Thailand’s Prevention of Mother-To-Child Transmission program (PMTCT)

By Wichsinee Wibulpolprasert

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.

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Engaging with Malthus: Joseph J. Spengler and Economic Demography

By Thomas Aten

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.

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Advisor: E. Roy Weintraub

Does Risk Pay? An Analysis of Short Gamma Trading Strategies and Volatility Forecasting in the Swaptions Market

By Tasha Staer Bollerslev

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.

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Advisor: Emma Rasiel

How Information from a Strategic Alliance Network Relates to Future Acquisition Performance in the Biotechnology and Pharmaceutical Industries

By Stephen Raymond

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.

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Advisor: Henry Grabowski

Determinants of Automobile Demand and Implications for Hybrid-Electric Market Penetration

By Sruthi M Thatchenkery

This paper investigates market receptivity to hybrid-electric vehicles by using cross-sectional data on vehicle registrations to estimate demand functions for the overall market, the hybrid market, and specialized vehicle segments. Each specification features intrinsic product attributes such as fuel efficiency and horsepower, while the hybrid specification also includes external influences on demand, such as government incentives, demographics, and environmentalism. I find that a preference for greater fuel efficiency is fairly consistent across most markets, but is typically overshadowed by stronger affinities for horsepower and weight. Certain external influences, such as convenience-based incentives and environmentalism, boost explanatory power but do not outweigh the effects of vehicle attributes.
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Advisor: Arie Beresteanu

Undue Burdens: The Effect of Abortion Restrictions on Foster Care Entry Rates

By Sara Sutherland

Since the 1973 ruling of Roe v Wade, the Supreme Court has permitted a new abortion law enforced at the state level that requires parental consent or notification for unmarried minors seeking abortion. This paper uses a panel of pooled state-level foster care entry rates over the years 1990 through 2005 and considers the impact of parental involvement restrictions on the foster care entry rates. Adding state and year fixed effects to control for changing unobservable variables, the results suggest a statistically significant positive correlation between enforced parental consent laws and foster care entry rates during these years. The results provide evidence that the presence of enforced parental consent laws can explain some of the increase in foster care entries. In opposition to previous results testing alternative outcomes, these results point to the ineffectiveness of notice laws (as opposed to consent laws) when considering foster care entry as the tested outcome.

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Advisor: Marjorie McElroy

Patterns Within the Trading Day: Volatility and Jump Discontinuities in High Frequency Equity Price Series

by Peer Van Tassel

This paper identities systematic patterns within the trading day by analyzing high frequency data from a market index and nine individual stocks. Empirical results expand on the previously documented U-shape in intraday equity volatility by implementing non-parametric statistics to test for patterns in the jump and diffusive components of volatility. Additional results indicate that a recently developed non-parametric jump detection scheme may under-report the number of returns flagged as statistically significant jumps in the middle of the day while exaggerating the number of statistically significant jumps in the early morning and late afternoon. The paper concludes by investigating whether incorporating the observed patterns into a historical forecasting model can improve performance.

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Advisor: George Tauchen

Marketing Laboratory Experiments: The Resistible Rise of Laboratory Markets

By Paul Slattery

This paper will endeavor to develop a history of market experimentation. It will begin with a discussion of its earliest manifestations in the work of Edward Chamberlin, tracing its development through the dominance of Vernon Smith, Charles Plott and their students, and ending with its prospects for the future. It will pay particular attention to the iterative process by which market experimentation developed and gained presence in a changing disciplinary context. In the earlier period of market experimentation, spanning from Edward Chamberlin’s work in the 1940s through the mid 1970s, the substantial research will lend itself to rather comprehensive analysis. However, from the mid 1970s on, the proliferation of market experimentation will require restricting the purview to only the most substantial developments.

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The VIX as a Fix: Equity Volatility as a Lifelong Investment Enhancer

By Michael Sloyer

The VIX, a measure of the implied volatility of S&P 500 index options, is the premier gauge of investor sentiment and market volatility. This analysis examines the effectiveness of adding the VIX to passively managed equity-bond portfolios. Furthermore, this study extends the existing literature by examining the efficacy of the VIX in a life-cycle investing context. Due to the large negative correlation between the VIX and the major equity indices, we find that a relatively small allocation to the VIX would have significantly improved the risk-return profile of standard equity-bond portfolios from 1986 through 2007. Additionally, we find that younger investors (i.e. investors with higher risk tolerances and thus more exposure to equities rather than fixed income) will benefit from having greater exposure to the VIX.

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Advisor: Emma Rasiel

Questions?

Undergraduate Program Assistant
Jennifer Becker
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu