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Category Archives: 2008

Tracking Decisions in North Carolina’s Public High Schools

By Michael Harris

This paper analyzes the criteria employed to assign students into tracked English and Mathematics classes across public high schools in North Carolina. Specifically, I examine the probability of high track placement moving from eighth grade to ninth grade classrooms based upon both achievement and demographic factors. Analysis is performed at both the school and district level. Although student performance does affect placement at both levels, there are other personal characteristics that are significant factors in determining track assignment. The main finding is that being black has a positive effect on high track placement at the district level, but a negative effect at the school level. The former appears to be linked to residential segregation, while the latter suggests a within-school bias that has important policy implications.

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Advisor: Thomas Nechyba

Merrill Lynch Consults® Program: An Analysis of Performance

By Megha Bisarya

Compared to mutual funds, separately managed accounts are a relatively new product for the financial services industry. They are customized portfolios of stocks or bonds that are monitored by professional investment managers but owned by the individual. This study analyzes the performance of Merrill Lynch’s separately managed accounts program, known as the Consults® program. I find that on average, the funds in the Consults® program generated lower returns than their respective style indices during July 2005 to June 2006. The funds also under performed a Vanguard basket of index funds during this same time period. Moreover, I find that there is a significant relationship between the returns for the funds in the Consults® program for the first half of July 2005 to June 2006 with the second half.

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Advisor: Edward Tower

Predicting Financial Debt Crises: A Case Study of India

By Matthew Sperber

The following paper develops a qualitative and quantitative model for predicting financial debt crises. The qualitative model breaks down the balance sheet of emerging market countries to identify weaknesses in the country’s assets and liabilities. The values of the items on a country’s balances sheet are then compared to the pre-crisis conditions of the East Asian and South American crises that occurred in the late 1990’s and early 2000’s. The quantitative model consists of a logistic function that uses economic variables to determine the probability that a country will face a financial crisis the following year. The logistic function is developed using a comprehensive set of data which consists of forty different variables from forty-three countries over the past ten years. The logistic model developed in the paper is further analyzed to identify the economic variables that have the greatest impact on a country having a financial crisis. The marginal effect each of the variables is identified by increasing each of the variables by one standard deviation while keeping the other variables constant. The variables with the greatest marginal effect have the largest impact on a financial crisis and policy reform is recommended based on keeping these variables at sustainable levels. The paper concludes with a case study that applies the models to India. Using the balance sheet analysis and the logistic model, India’s strengths and weaknesses are identified. The paper concludes that India is not in danger of a financial debt crisis but there are still many areas where the economy can improve.

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Advisor: Kent Kimbrough

Time-Zone Arbitrage in Vanguard International Index Funds

By Katelyn Rae Donnelly

Historically, mutual funds have often calculated their asset values for international mutual funds using stale prices, because some fund components register their last trades before the market close. These stale prices have caused daily fund returns to be predictable. This allows an arbitrage opportunity for investors who move their money at the end of the US trading day to reflect the next day change in European equities. The thesis quantitatively traces the history of this phenomenon, known as time zone arbitrage, in various mutual funds, particularly the Vanguard Fund Family, before and after the
phenomenon became well known.

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Advisor: Edward Tower

The Role of Conflict Diamond Sanctions in Postwar Peace Commitment

By Karin Sun

This paper models post-civil war conflict recurrence in Africa as a two-player sequential game. I treat the two “players” in my model, an incumbent government and a rebel group, as profit-maximizing firms who must each allocate a fixed supply of labor between diamond production and armed warfare. I then analyze the impact of conflict diamond sanctions on the players’ optimal labor allocations and on the likelihood that the Rebel will choose to demobilize after a civil war rather than return to armed conflict. I find that the minimum level of sanction needed to achieve demobilization is larger when the world price of diamonds is higher, and when the Rebel controls a smaller proportion of the country’s labor resources. The results of this study could inform policymakers about the value of diamond sanctions as a preventive tool against post-war conflict recurrence, as well as the most cost effective sanction that a mediator could impose given a certain set of circumstances.

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Advisor: Bahar Leventoglu

Property Rights and Growth: a Matter of Extremes

By Joshua Kazdin

This text explores the impact of property rights on economic growth by analyzing pooled cross-section ratings of property rights in 120 countries across a 35 year period. Empirical results are couched within a theoretical model that incorporates institutions into a general production function, adding property rights as an idiosyncratic shock. A generalized multivariate regression controlling for capital investment, population growth, trade openness and a benchmark level for GDP exhibits a positive impact of property rights on growth. Additional results indicate that the magnitude of property rights’ impact varies across different stages of development with the most profound impact in the extremes, i.e. the most developed and least developed countries. The text concludes by investigating the impact of legal heritage on the effectiveness of property rights as a growth propellant.

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Advisor: Lori Leachman

The Debt Laffer Curve: Estimates for 1990-2005

By Elena Bachvarova

This paper shows the Debt Laffer curve for all low- and middle-income countries for the period 1990-2005. Due to data limitations, only 127 of the 149 such countries are represented. Eastern Europe and Asia, with the exception of Myanmar and Lao PDR, do not suffer from debt overhang. Latin American countries tend to borrow around their threshold capacities, with only Nicaragua overborrowing. Africa is split in three—a third of the countries are on the wrong side, a quarter around the peak and the rest on the correct side.

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Advisor: Kent Kimbrough

On the Failure of the Median Voter Theorem in the Presence of Multiple Contests of Varying Types

By Edward Philpot

The median voter theorem, rst formalized by Duncan Black in 1948, is the result of a classic model used to describe the positioning of candidates in majority-rule elections, eponymously stating that candidates will converge to the median. The goal of this paper is to describe how the median voter theorem fails to hold in more general cases. Specically, when multi-contest majority rules elections (such as the United States presidential election) are considered, the median voter theorem fails in the presence of even one winner-take-all constituency; this failure provides opportunities for individual constituencies to skew the equilibrium candidate position toward the position of their median voter.

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Advisor: Daniel A Graham

An Empirical Analysis of Fundamental Indexation

By David Garver

The Capital Asset Pricing Model (CAPM) and the case for efficient market equity pricing has been dealt a series of blows over the last twenty years. The recent emergence (Arnott, Hsu & Moore, 2005) of a set of strategies that purport to beat the capitalization weighted market portfolio suggested by the efficient market hypothesis, using price insensitive valuation techniques (book value, total employment, and trailing five year averages of gross cash flow, revenue, sales and dividends) raises yet another strong challenge to financial dogma. This paper examines whether ETFs that track these ‘fundamental indexes’ experience superior risk adjusted performance on the CAPM and Fama-French Three Factor model relative to capitalization weighting or other ‘outperforming’ indexation strategies. The paper finds that over the period of June 2006 to March 2008, of the twelve domestic fundamental ETFs examined, only the Earnings 500 ETF consistently performed above the benchmarks. While the performance of large-cap and total market fundamental ETFs lend some strength to the argument for fundamental indexation, they underwhelm given fundamental indexation’s historical outperformance and undermine the claim that equity prices are, and will continue to be, significantly mistaken given the information inherent in firm fundamentals.

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Advisor: Edward Tower

The Effect of Maternal Employment on Adolescent Development

By Daniel Pu

The sharp rise in maternal employment in the recent decade may have unintended consequences for child development. Previous research has shown the negative impacts of maternal employment during early childhood on child cognitive development. However, no studies have investigated the long term effects of maternal employment. This study fills this void and investigates the effect of maternal employment on adolescent youth (age 12-16). Following Christopher Ruhm’s model, this paper analyzed 1444 youth using the 1997 National Longitudinal Survey of Youth. Results show no negative impact of maternal employment on child development. However, sex, race, child health, family income, parents’ education, and family environment were significant factors in determining child outcome.

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Advisor: Michelle Connolly


Undergraduate Program Assistant
Matthew Eggleston

Director of the Honors Program
Michelle P. Connolly