Money Illusion in the Stock Market: The Modigliani-Cohn Hypothesis

Modigliani and Cohn [1979] hypothesize that the stock market suffers from money illusion, discounting real cash flows at nominal discount rates. While previous research has focused on the pricing of the aggregate stock market relative to Treasury bills, the money-illusion hypothesis also has implications for the pricing of risky stocks relative to safe stocks. Simultaneously examining the pricing of Treasury bills, safe stocks, and risky stocks allows us to distinguish money illusion from any change in the attitudes of investors towards risk. Our empirical resuts support the hypothesis that the stock market suffers from money illusion.

The rise of Donald Trump’s “White Wall” means that 2017 will not be a good year for politics

In a recent article, Professor Inderjeet Parmar argued that not only was 2016 a great year for US politics, but that 2017 will be “even better”. Professor Randolph B. Persaud takes issue with these claims, arguing that with Trump’s election liberal identity politics is being replaced by a new patriotism based on a resurgent sense of Whiteness set against countries such as China and Mexico, and ‘other’ groups like Muslims. In addition, far from hurting the billionaire class and capitalist elites, Trump’s victory has instead put them in the driver’s seat

Who Underreacts to Cash-Flow News? Evidence from Trading between Individuals and Institutions

A large body of literature suggests that firm-level stock prices 'underreact' to news about future cash flows, i.e., shocks to a firm's expected cash flows are positively correlated with shocks to expected returns on its stock. We estimate a vector autoregession to examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Our main finding is that institutions buy shares from individuals in response to good cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up in the absence of positive cash-flow news, institutions sell shares to individuals. Although institutions are trading in the 'right' direction, institutions as a group outperform individuals by only 1.44 percent per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weight market index.

Variation in the impact of stem scar and cuticle on water loss in highbush blueberry fruit argue for the use of water permeance as a selection criterion in breeding

The role of fruit scar on water loss from fresh harvested, fully blue highbush blueberry (Vaccinium corymbosum L.) fruit was studied on three germplasm lines from each of three half-sib families at University of Talca, Chile. The stem scar of half of the harvested fruit was sealed using nail polish and weight loss of sealed and non-sealed fruit determined daily at 20 °C (5 d storage) and bi-weekly at 0 °C (15 d storage). Fruit firmness was determined at the end of the storage period. The stem scar accounted for approximately 40% of the moisture lost at 20 °C, but percentages varied considerably between lines. While the stem scar covered 0.19% to 0.74% of the fruit surface area, its rate of transpiration was 170-times higher than for the cuticle at 20 °C. The larger the fruit scar area, the greater was the absolute rate of water loss, but scar size scar did not affect the rate of weight loss expressed on a per gram fruit basis. Higher levels of water loss were associated with a greater loss in firmness; fruit having a large scar had a greater rate of water loss and were less firm than those having medium or small scars. The water permeance of the fruit cuticle varied two-fold and the apparent permeance of the scar varied three-fold among the 9 lines evaluated when held at 20 °C. Interestingly, one line exhibited a 75% lower rate of water loss from its stem scar than the other lines than would be predicted based on its scar diameter. Storage at 0 °C reduced the rate of water loss by 90% but the cuticle permeance was not affected by temperature. Sealing the stem scar increased fruit firmness retention at 0 °C and 20 °C, but provided less benefit at 0 °C vs. 20 °C. The highly variable nature of water loss through the stem scar and the cuticle in this study suggests that large gains in reductions in water loss are possible for the highbush blueberry once the mechanisms for transpiration are better understood.In Chile, this work was supported by the National Commission for Scientific and Technological ResearchCONICYT (FONDECYT11130539) and the Universidad de Talca (research programs “Adaptation of Agriculture to Climate Change (A2C2)”, “Fondo Proyectos de Investigación” and “Núcleo Científico Multidisciplinario”). In the United States this work was partially supported by the “2015 Fulbright Specialist Program”, Project 6365. In Spain this work was partially supported by “Fundación Carolina” and “Programa de Doctorado en Ciencia y Tecnología Agraria y Alimentaria”, Universitat de Lleida

The Value Spread

We decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small fraction (20%) of the total cross-sectional variance. The remaining dispersion can be explained by expected 15-year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. We also show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book-to-market ratio of a typical value stock and a typical growth stock) is wide.

Experimental studies of perceptual processes, section two Progress report, Jan. - Sep. 30, 1965

Complex discriminative behavior, fixed ratio reinforcement of large units of behavior and deferred reinforcement studied in chimpanzee

The Price is (Almost) Right

Most previous research tests market efficiency and asset pricing models using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis. In contrast, we measure the ability of a simple risk model and the efficient-market hypothesis to explain the level of stock prices. First, we find that cash-flow betas (measured by regressing firms' earnings on the market's earnings) explain the prices of value and growth stocks well, with a plausible premium. Second, we use a present-value model to decompose the cross-sectional variance of firms' price-to-book ratios into two components due to risk-adjusted fundamental value and mispricing. When we allow the discount rates to vary with cash-flow betas, the variance share of mispricing is negligible.