infonet-economy

This paper proposes a novel measure of economic uncertainty based on the frequency of internet searches. The theoretical motivation is offered by findings in economic psychology that agents respond to increased uncertainty by intensifying their information search. The main advantages of using internet searches are broad reach, timeliness and the fact that they reflect actions, rather...

We study the pricing of options on realized variance in a general class of Log-OU stochastic volatility models. The class includes several important models proposed in the literature. Having as common feature the log-normal law of instantaneous variance, the application of standard Fourier-Laplace transform methods is not feasible. We derive extensions of Asian pricing methods, to...

In this paper we study the pricing and hedging of options on realized variance in the 3/2 non-affine stochastic volatility model by developing efficient transform-based pricing methods. This non-affine model gives prices of options on realized variance that allow upward-sloping implied volatility of variance smiles. Heston's model [Rev. Financial Stud., 1993, 6, 327–343], the...

We examine the stock price reactions of four Swiss banks to negotiations between Switzerland and the European Union and between Switzerland and the United States to (i) obtain an estimate of the value of banking secrecy to Swiss banks, and (ii) distinguish between tax evasion and genuine privacy concerns as sources of that value. We find that the value of banking secrecy to the...

Given a firms investment policy, its dividend policy is irrelevant (Miller and Modigliani (1961)). REITs, by law, pay at least 90 % of their corporate income as dividends, so that their dividend policy is given. This is a reversal of the dividend irrelevance theorem through regulatory means. Such a high dividend payment also means lower retained earnings, leaving firms with little...

Stock market behavior of individual investors is highly correlated with stock market behavior of their co-workers. For example, a ten percentage point increase in the fraction of co-workers that purchase stocks in a given month is associated with a two percentage point increase in the likelihood of individuals making a purchase. The high correlation exists even after taking...

Empirical evidence shows that banks tend to lend too much during booms, and too littleduring recessions. Thus, instead of dampening productivity shocks, the banking sectortends to exacerbate them, leading to excessive fluctuations of credit, output and assetprices. We propose a simple explanation for this dysfunctionality of credit markets. Thisexplanation relies on three ingredients...

In many countries structured investment products are popular among retail investors.Weexplain the demand for these products using unique field data where we let subjects freely design their “favorite” structured product. Results suggest that the supply with capital protected products (guarantee certificates) might indeed be demand-driven. This does not seem to be the case for other...