Effects of Daylight Saving Time changes on stock market volatility: a reply

There is a rich array of evidence that suggests that changes in sleeping patterns affect an individual's decision-making processes. A nationwide sleeping-pattern change happens twice a year when the Daylight Saving Time (DST) change occurs. Kamstra, Kramer, and Levi argued in 2000 that a DST change lowers stock market returns. This study presents evidence that DST changes affect the relationship between stock market return and volatility. Empirical evidence suggests that the positive relationship between return and volatility becomes negative on the Mondays following DST changes.     

Intuition beyond recognition: when less familiar events are liked more

In a laboratory experiment, we compare the relative impact of two possible determinants of intuitive evaluative judgments: ease of recognition and total value of prior encounters with a target. Participants encode daily return values of shares on the stock market while watching videotaped ads on the computer screen. This dual-task procedure ensures that participants subsequently lack relevant event memories and thus have to rely on their intuition when evaluating the targets. In the presentation, the share appearing least frequently produced the highest sum of returns. In contrast, the share appearing most frequently produced the lowest sum of returns. Evaluative judgments reveal a preference for the share with the highest sum of returns, although, as evident from recognition latencies, it was the one that was more difficult to recognize. The results provide evidence for the value-account model of implicit attitude formation (Betsch, Plessner, Schwieren, & Gütig, 2001), which predicts that intuitive evaluative judgments reflect the total value of prior encounters.     

Professional Traders as Intuitive Bayesians

We compare the behavior of laboratory markets populated by experienced commodity and stock traders with the behavior of markets populated by MBA student traders. Unlike previous research, subject experience is a treatment variable in our experiment. Trading experience is found to be an important determinant of how well market outcomes approximate equilibrium predictions. Markets with student traders exhibit biases consistent with the prior literature; bias levels in markets with experienced traders are substantially reduced and trend toward zero. These market level results are confirmed with individual level tests. However, we cannot unambiguously determine whether the market outcomes with experienced traders are better organized using Bayes′ rule or by a heuristic-base rate neglect.     

Competitive Dynamics in Forecasting: The Interaction of Skill and Uncertainty

The outcomes in many competitive tasks depend upon both skill and luck. Behavioral theories on risk taking in tournaments indicate that low‐skilled individuals may have incentives to take more risks than high‐skilled ones. We build on these theories and suggest, in addition, that when luck is more important in determining outcomes, the increase in risk taking is larger for low‐skilled than high‐skilled individuals. We test this hypothesis by analyzing stock analysts' forecasts of companies' earnings per share under market conditions that vary in volatility and thus imply different levels of luck in outcomes. Specifically, noting that forecasts that deviate widely from the consensus—which is observable by the analyst—potentially carry career‐related rewards but also reputational risks, we examine the degree of deviation from consensus exhibited by analysts of different skill levels (measured by both past forecasting accuracy and education) in different market conditions. We find that average deviations from consensus increase as markets become more volatile. At the same time, under conditions of high volatility, low‐skilled analysts exhibit larger increases in deviations from consensus than high‐skilled analysts. These field data results support our hypothesis based on of risk taking in tournaments. We discuss alternative interpretations such as, for example, self‐serving attributions and indicate directions for future research. Copyright © 2012 John Wiley & Sons, Ltd.     

Effort for payment. A tale of two markets

The standard model of labor is one in which individuals trade their time and energy in return for monetary rewards. Building on Fiske's relational theory (1992), we propose that there are two types of markets that determine relationships between effort and payment: monetary and social. We hypothesize that monetary markets are highly sensitive to the magnitude of compensation, whereas social markets are not. This perspective can shed light on the well-established observation that people sometimes expend more effort in exchange for no payment (a social market) than they expend when they receive low payment (a monetary market). Three experiments support these ideas. The experimental evidence also demonstrates that mixed markets (markets that include aspects of both social and monetary markets) more closely resemble monetary than social markets.     

中国证券投资者的投资行为与个性特征

本研究采用综合性行为金融学手段,探索证券投资者的一般行为特征、心理特征以及行为特征和心理特征之间的关系。本实验首先采用访谈法对专业人士进行访谈,了解投资者的基本心理结构、一般的行为方式以及对证券市场的信息进行加工、决策的主要因素。在访谈基础上编制调查问卷,在全国7个城市(北京、上海、深圳、武汉、成都、西安和沈阳)对1063名投资者进行了问卷调查,从心理学角度对中国证券投资者的行为与心理特征进行了分析。结果表明：中国股市还是一个政策市,投资者对所投资对象的了解程度越高,掌握的投资知识越多,以及具备较高的独立性和自我效能,盈利的可能性越大。     

Effects of daylight-saving time changes on stock market volatility: a comment

In a recent article in this journal, Berument, Dogan, and Onar (2010) challenged the existence of the previously documented daylight-saving effect. Kamstra, Kramer, and Levi's original finding (2000) was that average stock market returns on Mondays following time changes are economically and statistically significantly lower than typical Monday returns. Kamstra, et al. hypothesized that the effect may arise due to heightened anxiety or risk aversion on the part of market participants after they experience a 1-hr. disruption in their sleep habits, in accordance with prior findings in the psychology literature linking sleep desynchronosis with anxiety. Berument, et al. replicated the original findings using ordinary least squares estimation, but when they modeled the mean of returns using a method prone to producing biased estimates, they obtained puzzling results. The analysis here, based on standard, unbiased modeling techniques, shows that the daylight-saving effect remains intact in the U.S.     

情绪能预测股市吗?

人类的非理性被经济学家Keynes视为是造成经济波动的主要原因, 而情绪是非理性行为的背后推动力之一。那么情绪是否与股票市场波动有关, 甚至预测股市波动？首先, 笔者从心理和神经生理角度出发, 尝试解释决策主体情绪、社会情绪是如何影响个体金融决策的。其次, 笔者将情绪与股市关系研究大致划分为投资者情绪与社会情绪研究。投资者情绪研究主要通过主观调查和客观市场指标构建情绪指标; 而近年来的社会情绪研究, 尤其是基于互联网平台的社会情绪研究, 为情绪与股市关系研究注入了新的活力。关于情绪与股市的关系问题远未定论, 情绪影响股市的内在机制也有待未来研究继续深化。而互联网大数据资源和信息技术在情绪与股市关系这一研究领域中, 将扮演越来越重要的角色。     

Employee Stock Options: Are They Indeed Superior to Other Incentive Compensation Schemes?

Although employee stock options are gaining in popularity as a compensation plan aimed at improving work performance, there is neither theoretical nor empirical evidence that they are indeed superior to other incentive schemes, such as profit sharing and gain sharing. This paper examines, from a theoretical perspective, the possible effects of four incentive plans on employee motivation and performance: merit pay, profit sharing, gain sharing, and employee stock options. The analysis relies on two behavioral theories, Expectancy and Equity, and a conceptual financial framework. The different approaches yield incongruent predictions as to which of the four schemes can be expected to most enhance employee motivation. While the managerial theories favor stock options over profit or gain sharing, financial theory makes the case that all plans are identical in a competitive labor market, whereas if stock options are restricted and the labor market exhibits some degree of imperfection, gain and profit sharing plans may prove superior.     

PROMPTING TECHNIQUES TO INCREASE THE RETURN RATE OF MAILED QUESTIONNAIRES1

To increase the return rate of questionnaires mailed to clergy and physicians concerning their mental-health practices, different prompts were used after the questionnaire was received during four mail-outs to four randomly drawn samples of clergy and physicians. For each mail-out, the sample was divided into experimental (received prompt) and comparison (no prompt) groups, and one type of prompt or combination was used. Non-returnees of the questionnaire in the experimental group received either: (a) a single telephone call, (b) a memo, (c) a package (personal letter and new questionnaire) or package plus a telephone call, or (d) a double call. Comparison physicians and clergy were mailed only the original questionnaire. Relative to their respective comparison group's return rate, which averaged 22% across the four mail-outs (range 18% to 24%), the single call and package alone about doubled the overall return rate, the package and call increased the return rate about two-and-a-half fold, and the double call almost tripled the return rate. The memo was ineffective. A cost-effectiveness analysis indicated that the double-call procedure was less expensive than the single call, and much less expensive than the package alone or package with a call in securing returns. An analysis of the pattern of returns showed clearly that when prompts were not delivered (comparison groups), very few returns were received after about seven days from the initial mail-out. Most returns from prompts (experimental groups) were received by several days after the prompt. The results were seen as salient to the problem of reducing selection or volunteer bias in questionnaire studies and subsequent research demonstrating the effectiveness of telephone calls made about a week after distribution of surveys in securing high return rates was discussed.     

The role of emotions arising from instability in investment behaviour / El papel de la carga emocional de la inestabilidad en el comportamiento de inversión

Abstract

Clear empirical evidence has been found on how significant changes to a person’s environment can alter their behaviour. This is important when considering investments made on the stock exchange as the variations that occur in stock market prices are frequent and continuous. This study analyses the role instability has on individual investors’ behaviour when investing in the stock market. The results suggest that instability in investment situations plays a significant role in individual investors’ behaviour, probably due to the emotional effect provoked by the possibility of suddenly losing savings. This would modify the perception investors have about investing as well as their intentions, attitudes and feelings of control in regards to investment in financial markets, thus hindering the capacity to predict their behaviour.     

证券交易中处置效应的实验研究

该项研究通过控制五只股票、每只股票有18期价格波动的实验来研究中国投资者的投资行为特征。结果发现,被试并没有表现出Bayesian最优行为,处置效应却很明显;被试之间在性别、专业、受教育程度与入市时间上的差异不构成处置效应程度上的差异。但入市资金量在5％的水平上对处置效应程度有显著作用。尽管实验中还发现均值反转信念发生作用的证据,但相对于处置效应而言,解释力度要弱。     

Volenti goes to Market*

If free markets consist in nothing more than “capitalist acts between consenting adults,” and if in the old legal maxim “volenti non fit injuria,” then it seems to follow that free markets do no wrongs. But that defense of free markets wrenches the “volenti” maxim out of context. In common law adjudication of disputes between two parties, it is perfectly appropriate to cast standards of “volenti” narrowly, and largely ignore “duress via third parties” (wrongs done to or by others who are not themselves party to the action). In economic markets, of course, those third-party effects are rife. But we want them to be rectified systematically, not piecemeal through particular cases between particular parties that happen to come to court. That is the proper province of political philosophers and system-designers, in critiquing and constraining the operation of the market. * I thank Peter Cane for much good advice, and exonerate him from any blame for the use I have made of it.     

Escalation of commitment with transparent future outcomes

A frequent case of irrational decision making is the tendency to escalate commitment to a chosen course of action after unsuccessful prior investments of money, effort, or time (sunk costs). In previous research it is argued that escalation does not occur when future outcomes and alternative investments are transparent. Inconsistent with this argument, in an experiment in which undergraduates were presented fictitious investment problems with sunk costs, escalation was demonstrated when full information was given about investment alternatives and estimates of future returns. Thus, it is indicated that people may escalate despite knowing that it will not make them economically better off. A more comprehensive understanding of escalation requires disentangling people's noneconomic reasons for escalation.     

The Balance of Power: Effects of Role and Market Forces on Negotiated Outcomes1

Role and market forces provide two sources of power that affect negotiated outcomes. To test their effects, 48 subjects participated in one of two negotiation markets that favored either buyers or sellers. Profit was influenced by both power sources: Buyers outperformed sellers, and negotiators in a favorable market outperformed negotiators in an unfavorable market. This effect was shown to be additive, indicating that the effects of the two sources of power were independent of one another. Whereas negotiators advantaged by market forces showed increases in profit over time, profits for negotiators disadvantaged by the market remained stable. Joint profit rose throughout both markets. However, this did not reflect increasing integrativeness in the markets; rather, the increase could be attributed to increases in high power negotiator profits. Markets became more distributive over time, and both the effectiveness and efficiency of bargaining decreased, particularly in the market favoring buyers.     

Social influence on predictions of simulated stock prices

Herding in financial markets refers to that investors are influenced by others. This study addresses the importance of consistency for herding. It is suggested that, in financial markets perceptions of consistency are based on repeated observations over time. Consistency may then be perceived as the agreement across time between investors' predictions. In addition, consistency may be related to variance over time in each investor's predictions. In an experiment using a Multiple Cue Probability Learning paradigm, 96 undergraduates made multi‐trial predictions of future stock prices given information about the current price and the predictions made by five fictitious others. Consistency was varied between the others' predictions (correlation) and within the others' predictions (variance). The results showed that the predictions were significantly influenced by the others' predictions when these were correlated. No effect of variance was observed. Hence, participants were influenced by the others when they were in agreement, regardless of whether they varied their predictions over trials or not. Copyright © 2008 John Wiley & Sons, Ltd.     

THE ELEPHANT IN THE ROOM: LABOR MARKET INFLUENCES ON CEO COMPENSATION

Although the "war for talent" at the executive level should theoretically have implications for executive pay, labor market competition and CEO career considerations have not been the focus of much executive compensation research to date. In this study, I utilize a multitheoretical perspective to examine the determinants of CEO annual compensation, with particular attention to external labor market factors and also to executive characteristics (e.g., experience and performance trajectory) that are conventionally believed to increase the labor market attractiveness (and alternative employment opportunities) of CEOs. In a sample of publicly traded firms, I find that these labor market-related factors and characteristics explain additional variance in annual pay beyond that predicted by firm size, annual performance, board composition, risk, and measures of CEO power, and that the variance explained by labor market variables is of a magnitude comparable to that explained by many of these more commonly studied variables. Results are consistent with the idea that corporate boards design CEO pay with retention concerns in mind: Total pay and stock option grant levels are strongly influenced by competitors' pay levels, and CEOs who are especially likely to be "raided" receive higher pay in some cases and, in other cases, have less risky (weaker) annual firm performance–pay relationships.     

The impact of modified instructions on ego-level scores: a psychometric hazard or indication of optimal ego level?

Various modified instructions have different effects on the Washington University Sentence Completion Test for Ego Development (Loevinger, 1985). These effects were reviewed and 2 alternative explanations were explored: The "measurement unreliability explanation" versus the "optimal level explanation." Both explanations were systematically studied in 2 test-retest experiments with the Sentence Completion Test for Children and Youths (Westenberg, Treffers, & Drewes, 1998). The modified instructions were to make a favorable impression on the tester ("fake good" condition) or to complete the sentences in as adult and mature a manner as one can ("be mature" condition). Both experiments were conducted with 9- to 15-year-old children and adolescents (N = 127, 128). As was anticipated, neither the fake good nor the be mature condition yielded higher (or lower) reliability indexes as compared to the standard instructions, hence discounting the measurement unreliability explanation. Also as expected, the fake good condition did not yield significantly higher ego-level scores, whereas the be mature condition did yield significantly higher ego-level scores. The former instructions did not convey information relevant to the construct or measure of ego development, whereas the latter instructions did convey information relevant for raising ego-level scores. It is argued that the higher scores under the be mature instructions might reflect the respondents' "optimal" ego level (best functioning), whereas the ego-level score under the standard instructions might reflect their "functional" level (normal functioning).     

Effect of effort and deadlines on consumer product returns

While extant research has examined return policies as a combination of time and effort, we investigate both the independent and interactive impacts of time and effort on consumer decisions to return or retain products. We find that decreasing return deadlines can have the counterintuitive effect of increasing return rates under some conditions. Using construal level theory, we propose that perceived effort (both physical and cognitive) mediates the effect of return policy on return rates leading to suppressed returns. Further, when deadlines are framed as durations between store visits, overall product returns are exacerbated except when perceived effort is high.     

The Effect of Gender and Self‐Care Behaviors on Counselors' Perceptions of Colleagues With Depression

This study examined the effects of gender and self‐care behaviors on counselors' perceptions of depressed colleagues. Three hundred and six respondents completed 1 of 8 versions of vignettes describing either a male or female counselor responding to his or her depressive symptoms through the use of antidepressants, counseling, alternative therapies, or no course of action. Target counselors who took antidepressants were perceived as more competent than counselors who practiced holistic measures and those who chose no course of action. Target counselors who sought personal counseling were perceived as more ethical than those choosing no course of action.