infonet-economy

My thesis considers new latent factor models, and their estimation methodologies, suitable for settings relatively unexplored in the econometric literature as (i) a nonlinear model for the joint dynamics of a large cross-sectional distribution of asset returns, and the persistence of the ranks of the individuals inside it; (ii) approximate linear latent factor models for large panels of mixed-frequency data; and (iii) small scale state space models featuring multiple time series with stochastic volatility and observed at different frequencies. The thesis is articulated in four chapters: Chapter 1 summarizes the motivation and the objectives of the thesis, while the remaining three chapters correspond to three different articles. Chapter 2 presents a new type of asset allocation strategies based on a novel dynamic model of the cross-sectional distribution of returns and the ranks of assets inside the same cross-sectional distribution. These strategies are implemented on a large panel of US stocks, and are shown to perform well compared to traditional asset allocation strategies. Chapter 3 proposes a new class of approximate latent factor models suitable for large panels of data observed at different frequencies. An empirical application uncovers the common components of monthly data on output growth rates of the US industrial production sectors, and the yearly output growth rates of all the remaining sectors of the US economy, mainly services. Chapter 4 introduces indirect inference estimators for state space models featuring mixed frequency observables and stochastic volatility, and considers an application to forecasting quarterly European GDP using monthly macroeconomic indicators.

This thesis analyzes different theoretical and empirical aspects related to the use of the information in asset pricing. As a main innovation I extend the asset pricing literature proposing a new highly flexible technique for the estimation of the markets subjective distribution of future returns. Applying this technique to different problems I answer to some long-lasting puzzles present in literature. The contribution of this project to the literature is two-fold: first, in line with the new findings of Ross (2015) but from a fully different prospective I propose a new technique to estimate the market's subjective distribution of future returns using, jointly, stock and options data. Second, after studying the theoretical reason behind the superiority of the proposed technique, I use it for different empirical applications.

Profit and its investment in productive activities lie at the heart of modern monetary economies. Indeed, it is thanks to profit investment that fixed capital is produced and used by companies to increase the number of consumption goods and, ultimately, to increase the wealth of households. Yet, despite economists’ full understanding of corporate gains from a microeconomic standpoint, economists are far from sharing a common theory of macroeconomic profit. In this book, an assessment is made of profit theories since 1874, the year that marked the advent of so-called mainstream economics. Following an analysis of bank money, a discrete-time theory of profit formation and economic growth is then proposed. Possibly the main conclusion of this inquiry, monetary authorities should distinguish distributive payments from those transactions that define the creation of new income. Thus, a reform of the system of national payments is advocated, aiming to keep record of all production-based wealth.

The main objective I pursue in this thesis is to better understand how different factors may independently and in combination influence retailers' ordering decisions under different supply chain structures (single agent and multi agent), different demand uncertainty (deterministic and stochastic), and different interaction among retailers (no interaction, competition and cooperation). I developed three different studies where I build on different formal management model and then run multiple behavioral studies to better understand subjects’ behavior. The first study analyzes order amplification in a single-supplier single-retailer supply chain. I used a behavioral experiment to test retailers’ orders under different ordering delays and different times to build supplier’s capacity. Results provide (i) a better understanding of the endogenous dynamics leading to retailers’ ordering amplification, and (ii) a description of subjects’ biases and deviation from optimal trajectories; despite subjects have full information about the system structure. The second study analyzes how order amplification can also take place when there is fierce retailer competition and limited supplier capacity. I study how different factors (different time to build supplier capacity, different levels of competition among retailers, different magnitudes of supply shortage and different allocation mechanisms) may independently and in combination influence retailers’ order in a system with two retailers under supply competition. Results show that (i) the bullwhip effect persists even when subjects do not have incentives to deviate, (ii) subjects amplify their orders in an attempt to build an unnecessary safety stock to respond to potential deviations from the other retailers, and (iii) retailers’ underperformance varies with the allocation mechanism used by the supplier. In the last study, I analyze retailers’ orders in a system where there is uncertainty in the final customer demand. I experimentally explore the effect of transshipments among retailers in a single-supplier multi-retailer supply chain. Specifically, I explore retailers’ orders under different profit and communication conditions. In addition, I integrate analytical and behavioral models to improve supply chain performance. Results show that (i) the persistence of common biases in a newsvendor problem (pull-to-center, demand chasing, loss aversion, psychological disutility), (ii) communication could improve coordination and may reduce demand chasing behavior, (iii) supply chain performance increases with the use of behavioral strategies embedded within a traditional optimization model, and (iv) dynamic heuristics improve overall coordination, outperforming a simple Nash Equilibrium strategy.

Tourism is often introduced as a subject in formal education curricula because of the increasing and significant economic contribution of the tourism industry to the private and public sector. This is especially the case in emerging economies in Asia and Africa (Hsu, 2015; Mayaka & Akama, 2015; Cuffy et al., 2012). Tourism in South Africa – which is the geographical setting of this research – is recognised as a key economic sector. At secondary level, tourism has been widely introduced at schools throughout South Africa since 2000 and has experienced significant growth (Umalusi, 2014). Furthermore, information and communication technology (ICT) has rapidly penetrated public and private sectors of the country. ICT affords novel opportunities for social and economic development, and this has especially been observed in the fields of both tourism and education (Anwar et al., 2014; Vandeyar, 2015). Yet, the many uses and implications of ICT for tourism education in South Africa are unclear and under-theorised as a research area (Adukaite, Van Zyl, & Cantoni, 2016). Moreover, engagement has been identified as a significant indicator of student success in South Africa (Council for Higher Education, 2010). Lack of engagement contributes to poor graduation rates at secondary and tertiary institutions in South Africa (Strydom et al., 2010; Titus & Ng’ambi, 2014). A common strategy to address lack of student engagement is introducing game elements into the learning process: the so-called gamification of learning (Kapp, 2012). The majority of research in this field has been conducted in more economically advanced and developed regions, and there is a paucity of research in emerging country contexts. It is argued that gamification can be effectively utilised also in these contexts to address learner engagement and motivation. This study aims to contribute in this respect: firstly, by investigating the extent to which ICT supports tourism education in South African high schools through the lenses of Technology Domestication Theory (Habib, 2005; Haddon, 2006) and Social Cognitive Theory (Bandura, 1977). Secondly, the study aims to examine gamified learning acceptance within tourism education in a developing country context. The research assimilates three separate studies. Study 1. The Role of Digital Technology in Tourism Education: A Case Study of South African Secondary Schools The study was designed as an exploratory analysis, based on 24 in-depth interviews (n=24) with high school tourism teachers and government officials. An analysis reveals that teachers recognize ICT as essential in exposing students to the tourism industry. This is especially the case in under-resourced schools, where learners do not have the financial means to participate in tourism activities. However, ICT is still limited in its integration as a pedagogical support tool. The major obstacles toward integration include: technology anxiety, lack of training, availability of resources, and learner resistance to use their personal mobile devices. Study 2. Raising Awareness and Promoting Informal Learning on World Heritage in Southern Africa. The Case of WHACY, a Gamified ICT-enhanced Tool The goal of the study was to present the World Heritage Awareness Campaign for Youth (WHACY) in Southern Africa. A campaign was dedicated to raise awareness and foster informal learning among Southern African youth about the heritage and sustainable tourism. The campaign employed an online and offline gamified learning platform, which was supported by a dedicated website, Facebook page, wiki and offline materials. In one year of operation the campaign reached more than 100K audience. For the evaluation of the campaign, a mixed methods approach was used: focus groups with students (n=9), interviews (n=19) and a survey with teachers (n=209). The study attempted to assess user experience in terms of engagement and conduciveness to learning and explored the possibility of a gamified application to be integrated into the existing high school tourism curriculum. The perspectives of South African tourism students and teachers were here considered. Study 3. Teacher perceptions on the use of digital gamified learning in tourism education: The case of South African secondary schools. The study is quantitative in nature and investigated the behavioural intention of South African tourism teachers to integrate a gamified application within secondary tourism education. Data collected from 209 teachers were tested against the research model using a structural equation modelling approach. The study investigated the extent to which six determined predictors (perceptions about playfulness, curriculum relatedness, learning opportunities, challenge, self-efficacy and computer anxiety) influence the acceptance of a gamified application by South African tourism teachers. The study may prove useful to educators and practitioners in understanding which determinants may influence gamification introduction into formal secondary education.

My PhD thesis consists of three papers which study the nature, structure, dynamics and price of variance risks. As tool I make use of multivariate affine jump-diffusion models with matrix-valued state spaces. The first chapter proposes a new three-factor model for index option pricing. A core feature of the model are unspanned skewness and term structure effects, i.e., it is possible that the structure of the volatility surface changes without a change in the volatility level. The model reduces pricing errors compared to benchmark two-factor models by up to 22%. Using a decomposition of the latent state, I show that this superior performance is directly linked to a third volatility factor which is unrelated to the volatility level. The second chapter studies the price of the smile, which is defined as the premia for individual option risk factors. These risk factors are directly linked to the variance risk premium (VRP). I find that option risk premia are spanned by mid-run and long-run volatility factors, while the large high-frequency factor does not enter the price of the smile. I find the VRP to be unambiguously negative and decompose it into three components: diffusive risk, jump risk and jump intensity risk. The distinct term structure patterns of these components explain why the term structure of the VRP is downward sloping in normal times and upward sloping during market distress. In predictive regressions, I find an economically relevant predictive power over returns to volatility positions and S&P 500 index returns. The last chapter introduces several numerical methods necessary for estimating matrix-valued affine option pricing models, including the Matrix Rotation Count algorithm and a fast evaluation scheme for the Likelihood function.

Traded corporations are required by law to have a majority of outside directors on their board. This requirement allows the existence of directors who sit on the board of two or more corporations at the same time, generating what is commonly known as interlocking directorates. While research has shown that networks of interlocking directorates facilitate the transmission of information between corporations, little is known about the extent to which such interlocking networks can explain the fluctuations of stock price returns. Yet, this is a special concern since the risk of amplifying stock fluctuations is latent. To answer this question, here we analyze the board composition, traders’ perception, and stock performance of more than 1,500 US traded corporations from 2007-2011. First, we find that the fewer degrees of separation between two corporations in the interlocking network, the stronger the temporal correlation between their stock price returns. Second, we find that the centrality of traded corporations in the interlocking network correlates with the frequency at which financial traders talk about such corporations, and this frequency is in turn proportional to the corresponding traded volume. Third, we show that the centrality of corporations was negatively associated with their stock performance in 2008, the year of the big financial crash. These results suggest that the strategic decisions made by interlocking directorates are strongly followed by stock analysts and have the potential to correlate and amplify the movement of stock prices during financial crashes. These results may have relevant implications for scholars, investors, and regulators.

The stability analysis of socioeconomic systems has been centred on answering whether small perturbations when a system is in a given quantitative state will push the system permanently to a different quantitative state. However, typically the quantitative state of socioeconomic systems is subject to constant change. Therefore, a key stability question that has been under-investigated is how strongly the conditions of a system itself can change before the system moves to a qualitatively different behaviour, i.e. how structurally stable the systems is. Here, we introduce a framework to investigate the structural stability of socioeconomic systems formed by a network of interactions among agents competing for resources. We measure the structural stability of the system as the range of conditions in the distribution and availability of resources compatible with the qualitative behaviour in which all the constituent agents can be self-sustained across time. To illustrate our framework, we study an empirical representation of the global socioeconomic system formed by countries sharing and competing for multinational companies used as proxy for resources. We demonstrate that the structural stability of the system is inversely associated with the level of competition and the level of heterogeneity in the distribution of resources. Importantly, we show that the qualitative behaviour of the observed global socioeconomic system is highly sensitive to changes in the distribution of resources. We believe that this work provides a methodological basis to develop sustainable strategies for socioeconomic systems subject to constantly changing conditions.