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Category Archives: 2019

Wrangling the Herd: A Cross-Cultural and Cross-Industry Approach to Herding Market Behavior

By Tyler Fenton and Jarred Kotzin

The traditional efficient market hypothesis serves as the foundation of modern economic theory, governing the investigation of financial markets. While this premise assumes all investors are rational and all information is immediately incorporated into markets, this paper explores herding behavior – a central tenet of behavioral finance that explains the apparent inefficiencies of financial markets. Utilizing return data from the past 10 years from eight exchanges around the world, segmented into 10 industry classes as well as a broad market index, we compare levels of herd behavior using return dispersion proxies. We find significant evidence of herding in nearly all exchanges and all industries included in the study and the degree of this herd behavior varies across industries in different countries. Overall, we find support for the behavioral finance principle of herding and conclude that certain cultural or non cultural factors affect this activity differently in various countries and industries.

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Advisors: Professor Connel Fullenkamp | JEL Codes: G4, G14, G15

Is Smart Money Smart? The Costs of Hedge Funds Trading Market Anomalies

By Matthew J. Farrell

Do hedge funds earn statistically significant premia on common factor trading strategies after trading costs are accounted for? Furthermore, what is the gap between what a hedge fund would earn and the paper portfolios that they hold? I answer this question by using the latest cutting-edge methodology to estimate trading costs for major financial market anomalies. This methodology uses the familiar asset-pricing Fama-MacBeth procedure to compare the on-paper compensation to factor exposures with those earned by hedge funds. I find that the typical hedge fund does not earn profits to value or momentum, and and low returns to size.

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Advisor: Professor Brian Weller | JEL Codes: G12; G14; G23;

Does Media Coverage of Sexual Assault Cases Cause Victims to Go to the Police? Evidence from FBI Data and Google Trends

By Harry Elworthy

This paper investigates the effect that national news coverage of prominent sexual assaults has on the reporting decisions of sexual assault victims. Estimates are based on time series data of reports made to police stations in the US from 2008 to 2016 and Google Trends data of search volume, along with an identification strategy that uses a number of individual high profile sexual assault allegations and related events as instruments. By removing assaults that occurred on the day that they were reported, I estimate the effect of coverage only on the reporting of assaults, and not on assaults themselves. A significant positive effect of news coverage on sexual assault reporting is found using several specifications. Back-of-the-envelope calculations suggest that there were between 31 and 121 additional reports of sexual assault for each of the 38 high profile events captured. No evidence is found to suggest that these additional reports of sexual assault have different arrest rates to other reports, indicating that there are not a significant number of false reports. This paper adds to current literature on the sexual assault reporting decision by considering the effect of news coverage and by using different methods of inference to previous papers.

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Advisor: Professor Patrick Bayer | JEL Codes: D91, J16, K42, L86, Z13

Landlords and Evictions: Changes in the Ownership of Multi-Family Rental Properties and Its Impact on Housing Stability in Durham, NC

By Ekim Buyuk

This thesis investigates the changes in the ownership of multi-family rental complexes in
Durham between 2000 and 2018 and their subsequent impact on housing stability. Specifically, I model and compare the likelihood that an eviction filing is issued by corporate and individual landlords in the periods before and after a transaction. Since the early 2000s, institutional investor share in all property sizes has increased dramatically in the United States. In 2013, the Blackstone Group released the first-ever rated bond backed by single-family securitized rental payments, and since then, numerous firms have followed with similar security offerings, which as of 2018 include bonds backed by multi family rental income. The surge of institutional investment in multi-family rental properties and its impacts on communities have remained largely ignored in academic literature. Durham County currently holds one of the highest eviction rates in North Carolina and ranks in the top 40 of highest evicting large cities in the United States. In my thesis, I uncover how ownership of rental properties in Durham has changed since the early 2000s and investigate whether the behaviors of “corporate landlords” differ significantly from those of individual investors (or “mom and pop” landlords”). I find that the proportion of properties under corporate ownership has increased across all property sizes since 2000, and the proportion of corporate owners that are based out-of-state has also increased. I also find evidence to suggest that different sizes of multi-family properties should be examined distinctly, as I uncover different trends across property sizes in both ownership and eviction rates. Using a fixed effects model, I find that overall, individuals appear to have a higher likelihood of filing an eviction against a tenant compared to institutional landlords in the months before and after a transaction. Finally, I find that large investors amongst both corporates and individuals, defined as investors that own more than 15 properties in Durham, are significantly more likely to evict than smaller investors are.

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Advisors: Professor Christopher Timmins, Professor Colin Rundel | JEL Codes: R3, R31

Investigating a Case of Alleged Collusion in Michigan Public Oil and Gas Lease Auctions

By Lucas Do

The state of Michigan administers oil and gas lease auctions semiannually through the Department of Natural Resources. In June 2012, the international news outlet Reuters published allegations of bid-rigging following the Department’s May 2010 auction. This paper empirically investigates the validity of Reuters’ allegations by analyzing auction bid sheets from 2008 to 2018 as well as other data reflecting market conditions over time. To this end, I first formulate a benchmark structural model of bidders’ valuations and estimate it with auction data from a period during which I assume no collusion occurred. Then, I extend the benchmark model by endogenizing bidders’ decision to collude. Using the extended model and the estimated benchmark parameters, I apply the simulated method of moments to solve for the collusive probability that “best” explains the observed bids during the alleged period of collusion. After discovering strong evidence for bid-rigging, I run counterfactual simulations to estimate the revenue damage caused to the state of Michigan by this non-competitive bidding behavior. I find that the hypothetical revenue damage, summed over the entire alleged collusive period, totals over $450 million. However, although these findings lend support to Reuters’ allegations and are contrary to the Department of Justice’s conclusion in 2014 after they had probed the case, they should be approached only with caution, given the limitations of the available data on the potential bidders.

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Advisors: Professor Jame Roberts, Professor Michelle Connolly | JEL Codes: L4, D44, L71

Cashing Out the Benefits: The Spillover Impact of Cash Transfers on Household Educational Investment

By Mitchell Garrett Ochse and Matheus Dias

Using electricity price, generation, installed capacity, and carbon price data from the European Union from January 2015 to December 2018, this study finds that the carbon pricing in the European Union Emissions Trading Scheme (EU ETS) incentivizes electricity sector carbon emission reductions through renewable energy deployment only for economically advanced EU members. Transitional economies show a weak to modest carbon emission increase despite a common carbon price. This study estimates an electricity supply curve, or merit order, for 24 EU ETS members using a Tobit regression model and analyzes changes in this curve using a linear bspline. These shifts provide insight into how carbon pricing affected energy generation, price, and CO2 emissions for two distinct categories of EU member states. The advanced category as a whole saw a strong electricity sector decrease in carbon emissions, both over time and from carbon pricing, while the transitional category as a whole saw a weak increase. This indicates that advanced EU members in Northern, Western, and Central Europe likely sold permits to transitional ones in Southern and Eastern Europe. While these findings may initially reflect the gains from trade of carbon emissions, permits inherent in the European Union Emissions Trading Scheme’s design, the implications of how these two distinct groups have changed electricity generation present challenges to the ultimate long-term goal of EU-wide carbon neutrality by 2050, particularly in transitional economies’ electricity sectors.

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Advisors: Professor Xiao Yu Wang, Professor Michelle Connolly | JEL Codes: C93; I21; I24

Responses to EU Carbon Pricing: The Effect of Carbon Emissions Allowances on Renewable Energy Development in Advanced and Transitional EU Members

By John Dearing

Using electricity price, generation, installed capacity, and carbon price data from the European Union from January 2015 to December 2018, this study finds that the carbon pricing in the European Union Emissions Trading Scheme (EU ETS) incentivizes electricity sector carbon emission reductions through renewable energy deployment only for economically advanced EU members. Transitional economies show a weak to modest carbon emission increase despite a common carbon price. This study estimates an electricity supply curve, or merit order, for 24 EU ETS members using a Tobit regression model and analyzes changes in this curve using a linear bspline. These shifts provide insight into how carbon pricing affected energy generation, price, and CO2 emissions for two distinct categories of EU member states. The advanced category as a whole saw a strong electricity sector decrease in carbon emissions, both over time and from carbon pricing, while the transitional category as a whole saw a weak increase. This indicates that advanced EU members in Northern, Western, and Central Europe likely sold permits to transitional ones in Southern and Eastern Europe. While these findings may initially reflect the gains from trade of carbon emissions, permits inherent in the European Union Emissions Trading Scheme’s design, the implications of how these two distinct groups have changed electricity generation present challenges to the ultimate long-term goal of EU-wide carbon neutrality by 2050, particularly in transitional economies’ electricity sectors.

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Advisors: Dr. Lincoln Pratson, Professor Christopher Timmins | JEL Codes: Q4, Q43, Q48, Q5, Q52, Q56, Q58

The Future of Economic Geopolitics: Network Effects in Intercultural Trade

By Joshua Curtis

Using a regression discontinuity design on a gravity model of trade among 36 Middle Eastern and East Asian countries between 1980 and 2014, this study demonstrates network effects in trade. A small improvement in trade between subsets of two cultural blocs diminishes the effect of cultural similarity on trade between all members of the two cultural blocs. The result holds regardless of whether cultural similarity was originally a boon or drag on trade. Furthermore, international businesses adjust to new intercultural acumen very rapidly. The effect demonstrated herein points toward an answer to economic dilemmas posed by Huntington’s “clash of civilizations.”

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Advisor: Dr. Lori Leachman, | JEL Codes: F1, F5, B27

The Impact of Collegiate Athletic Success and Scandals on Admissions Applications

By William J. Battle-McDonald

This paper examines how the quantity and quality of admissions applications to Division 1 colleges and universities were affected by two non-academic factors: (1) performance of a school’s men’s basketball and football teams; and (2) scandals associated with these athletic programs. Admissions data from 2001 – 2017 were compared to team performance during their football and basketball seasons in order to understand how these non-academic factors contribute to an individual’s decisions to apply for admission. A multivariate linear regression model with school and year fixed effects supported the hypothesis that athletic success positively affects the quantity of applications, increasing them by up to 3% in basketball and 11% in football in the following application period. Seasonal football success was also shown to have negative impacts on the distribution of standardized testing scores of future applicant classes, however these scores were shown to increase when a team played their best season in five or more years. Additional analysis of the effects of athletic program scandals reveals a significant negative effect on the number of applications received, although a deep dive into a few of the most prominent scandals suggests that the benefits associated with violating NCAA rules may, under the right circumstances, be well worth the risk.

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Advisor: Dr. James Roberts | JEL Codes: I23, J24, L82, L83, Z2

The Impact of Violence in Mexico on Education and Labor Outcomes: Do Conditional Cash Transfers Have a Mitigating Effect?

By Hayley Jordan Barton

This research explores the potential mitigating effect of Mexico’s conditional cash transfer program, Oportunidades, on the education and labor impacts of increased homicide rates. Panel data models are combined with a difference-in-differences approach to compare children and young adults who receive cash transfers with those who do not. Results are very sensitive to specification, but Oportunidades participation is shown to be positively associated with educational attainment regardless of homicide increases. Homicides are associated with decreases in likelihood of school enrollment and compulsory education completion; however, they also correspond with increases in educational attainment, with a larger effect for Oportunidades non-recipients.

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Advisors: Dr. Charles Becker, and Dr. Michelle Connolly | JEL Codes: C23; D15; I20; I38; J24

Questions?

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

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