Explaining co-movements between equity and CDS bid-ask spreads

In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads

Heterogeneity, Selection, and Wealth Dynamics

The market selection hypothesis states that, among expected utility maximizers, competitive markets select for agents with correct beliefs. In some economies this hypothesis holds, whereas in others it fails. It holds in complete-markets economies with a common discount factor and bounded aggregate consumption. It can fail when markets are incomplete, when consumption grows too quickly, or when discount factors and beliefs are correlated. These insights have implications for the general equilibrium modeling of asset prices and macroeconomic phenomena.market selection hypothesis, rational expectations, survival index, asset pricing

Pricing a Protest: Forecasting the Dynamics of Civil Unrest Activity in Social Media

Online social media activity can often be a precursor to disruptive events such as protests, strikes, and "occupy" movements. We have observed that such civil unrest can galvanize supporters through social networks and help recruit activists to their cause. Understanding the dynamics of social network cascades and extrapolating their future growth will enable an analyst to detect or forecast major societal events. Existing work has primarily used structural and temporal properties of cascades to predict their future behavior. But factors like societal pressure, alignment of individual interests with broader causes, and perception of expected benefits also affect protest participation in social media. Here we develop an analysis framework using a differential game theoretic approach to characterize the cost of participating in a cascade, and demonstrate how we can combine such cost features with classical properties to forecast the future behavior of cascades. Using data from Twitter, we illustrate the effectiveness of our models on the "Brazilian Spring" and Venezuelan protests that occurred in June 2013 and November 2013, respectively. We demonstrate how our framework captures both qualitative and quantitative aspects of how these uprisings manifest through the lens of tweet volume on Twitter social media