Exogenous Events Research Articles

Exogenous and Endogenous Price Jumps Belong to Different Dynamical Classes

Synchronising a database of stock specific news with 5 years worth of order book data on 300 stocks, we show that abnormal price movements following news releases (exogenous) exhibit markedly different dynamical features from those arising spontaneously (endogenous). On aver- age, large volatility fluctuations induced by exogenous events occur abruptly and are followed by a decaying power-law relaxation, while endogenous price jumps are characterized by progressively accelerating growth of volatility, also followed by a power-law relaxation, but slower than for exogenous jumps. Remarkably, our results are reminiscent of what is observed in different contexts, namely Amazon book sales and YouTube views. Finally, we show that fitting power-laws to individual volatility profiles allows one to classify large events into endogenous and exogenous dynamical classes, without relying on the news feed.

Carbon Risk and Real Earnings Management

A growing body of literature finds that firm-level carbon emissions are associated with a number of adverse outcomes such as higher firm risk, lower firm value, higher option premiums to cover downside tail risk, and declines in future profitability. Given these adverse effects, this paper examines whether carbon emissions affect the financial reporting decisions of firms. Consistent with firms attempting to report higher income in periods of high carbon emissions, possibly in the hope of offsetting some of the negativity associated with the latter, we find the carbon emissions and real earnings management (REM) of firms to be positively associated. Providing evidence of a causal link, we find this relationship to have weakened following the largely exogenous event of the 2016 election of President Trump, which significantly decreased the cost of carbon emissions for firms. In cross-sectional tests, we find the relationship between carbon emissions and REM to be stronger (weaker) for firms located in states with more stringent (less stringent) enforcement of environmental regulations. Further, this relationship is weaker (stronger) for firms with stronger (weaker) corporate governance. We also find that the presence of more short-term oriented transient institutional investors exacerbates the association between carbon emissions and REM. The paper contributes to the literature on both the determinants of REM and firm-level consequences of carbon emissions.

Prominence over Proximity? The Effects of Terrorist Attacks on Party Preferences for Incumbent versus Populist Radical Right Parties

How does a terrorist attack affect party preferences? Based on existing theories, we would either expect incumbent parties to benefit because of a rally-effect, or populist radical right parties to gain due to a radicalization of voters' preferences. These competing theories are tested with a unique data set of 413.175 voters' responses on a Voting Advice Application. We do so using a novel way to leverage exogenous events using big public opinion data. We show that a terrorist attack has a positive effect for the main incumbent party, even when voters' positions on the issues owned by the populist radical right parties become more radicalized. This means that during crises, voters rally around the flag and prefer prominence over proximity.

Can Monitoring Help Flatten the World? An Empirical Examination of Online Hiring

With the prevalence of online employment platforms, employers are increasingly hiring remote workers from those platforms and using platform-provided monitoring systems to keep track of workers’ activities. We propose that the effect of monitoring goes beyond the findings from the extant monitoring literature that has predominantly examined the productivity effects. Specifically, we hypothesize that monitoring systems would reduce employers’ bias against foreign workers (home bias), thus flattening the global labor markets. Employers tend to have home bias owing to the high transaction risks and coordination costs in dealing with foreign workers. As monitoring systems automate the collection of workers’ activities during the project process, they inform employers on the work process and project progress in real time and facilitate the coordination process with remote workers. Thus, employers may reduce their home bias because the risks of hiring foreign workers and the associated coordination costs have been substantially reduced. With a unique large-scale data set from a major global online employment platform, we leverage a difference-in-differences model and the exogenous event of the introduction of a platform-provided monitoring system for time-based projects to estimate the impact of monitoring systems on employers’ home bias. We find that employers significantly reduce their home bias after the introduction of the monitoring system. Further, the decrease in employers’ home bias is smaller for employers who had positive hiring experiences with foreign workers before the introduction of the monitoring system. In addition, the decrease in employers’ home bias is larger in high-routine projects than in low-routine projects, with the latter being more difficult to monitor. Our findings are robust to alternative empirical specifications and provide important managerial implications for improving the design of online employment platforms.

Distant Shocks, Migration, and Housing Supply in India

It is hard to estimate housing supply elasticities. India is a particularly useful country to study housing supply because it is large and has a variety of housing typologies. We estimate the supply elasticity of non-durable, durable, and vacant residential housing units in urban India. We use two migration-inducing exogenous events --- negative rainfall shocks and a highway upgrade program --- occurring in a distant state as demand shifters for local urban housing markets. We apply the Rosen-Roback spatial equilibrium framework to show that both the negative rainfall shocks and the highway upgrade program in a distant state increase inter-state migration. This increase leads to higher population and household growth, and therefore, higher demand for housing in local urban markets. Our findings are three-fold. First, we estimate the long-term supply elasticity of durable housing in urban India to be 1.64. This estimate is substantially lower than the long-run housing supply elasticity estimates of 6-13 for metropolitan areas in the United States seen in the literature. Second, we find that the supply elasticity of non-durable housing is -0.55. Negative supply elasticity of non-durable housing is consistent with the existence of urban gentrification through the demolition and upgrading of slums. And finally, we estimate the elasticity of vacant residential housing unit supply to be 2.63. We posit that a relatively higher vacant housing unit elasticity indicates speculative building by developers.

Civil Service Reform Is Dead: Long Live Civil Service Reform

The federal civil service system is widely regarded as obsolete. The pay of federal employees bears little relation to the market, narrowly defined jobs hamper the assignment of tasks, and byzantine hiring rules impede the procurement of needed skills. The theory of punctuated equilibrium holds that an episode of rapid and dramatic change portends, that the pressures for change will build and that some exogenous event will trigger a reform event similar to what happened in the mid-2000s subsequent to the 9/11 terrorist incident. Does another episode of punctuated equilibrium impend or is change more likely to occur in an incremental manner? Distinctive features of the policy subsystem make evident the improbability of another episode of “grand reform.” Recent developments further highlight a dynamic element whereby small-scale adjustments are being employed to address some of the system’s most dysfunctional aspects.

The dynamic evolution of Chinese firms’ cash holdings and R&D: external financing facilitation channels

ABSTRACT We study the dynamic evolution of Chinese firms’ cash holdings and their relationship with R&D investment using a sample of companies listed in the Chinese A-share market. After introducing the exogenous events of the 2008 financial crisis and China’s ‘four trillion yuan’ monetary stimulus plan (2008–2010), we analyse the dynamic evolution of the relationship between firms’ cash holdings and R&D investment in the development of external financing facilitation channel effects from the perspective of two typical financing facilitation channels, namely bank relationship and equity state-ownership. The main findings are as follows: (1) Firms with higher R&D investments tend to hold more cash reserves. This positive correlation is affected by the economic and monetary conditions, which are changing constantly. The sensitivity of cash holdings to R&D investment plays a crucial role in explaining the dynamic evolution of Chinese firms’ cash holdings. (2) During the 2008 financial crisis, bank relationship and equity state-ownership significantly mitigated the positive relationship between firms’ cash holdings and R&D investments, which means that external financing facilitation channels had greater and more significant effects. Moreover, those effects decreased after the completion of the ‘four trillion yuan’ monetary stimulus plan.

Análise de frequência de vícios construtivos em habitações de interesse social

A grande frequência de vícios de construção em unidades habitacionais de interesse social no Brasil é um problema que historicamente preocupa o setor da construção civil. A Caixa Econômica Federal financia parcela significativa dessas habitações como agente de políticas de Estado. O objetivo deste estudo foi de relacionar as falhas construtivas mais incidentes em habitações sociais na região de Curitiba para subsidiar intervenções nos processos de gestão dessas obras e reduzir as ocorrências. Foi realizada a classificação das ocorrências pelo tipo de manifestação patológica, pelo impacto e custo. Em seguida as unidades foram classificadas pelas modalidades de financiamento, pela intensidade de controle técnico durante a construção e idade. No estudo, foram excluídas falhas motivadas por eventos exógenos ou por mau uso. A análise dos dados apontou como prioritário, no âmbito do mercado brasileiro da construção civil, o atendimento às manifestações relacionadas ao recalque ou deformação de elementos estruturais em concreto, com 18,94% das ocorrências. Os imóveis financiados em operações bancárias de maior controle técnico sofreram, com maior incidência entre os danos, a ocorrência de vazamentos hidráulicos em 12,5% do total. Nas modalidades de menor controle técnico, a prioridade foi de prevenção de recalques de fundações ou deformação de elementos de concreto, com 11,54% do total.

Antiapoptotic Bcl-2 family proteins BCL-xL and MCL-1 integrate neural progenitor survival and proliferation during postnatal cerebellar neurogenesis

The tendency of brain cells to undergo apoptosis in response to exogenous events varies across neural development, with apoptotic threshold dependent on proliferation state. Proliferative neural progenitors show a low threshold for apoptosis, while terminally differentiated neurons are relatively refractory. To define the mechanisms linking proliferation and apoptotic threshold, we examined the effect of conditionally deleting Bcl2l1, the gene that codes the antiapoptotic protein BCL-xL, in cerebellar granule neuron progenitors (CGNPs), and of co-deleting Bcl2l1 homologs, antiapoptotic Mcl-1, or pro-apoptotic Bax. We found that cerebella in conditional Bcl2l1-deleted (Bcl-xLcKO) mice were severely hypoplastic due to the increased apoptosis of CGNPs and their differentiated progeny, the cerebellar granule neurons (CGNs). Apoptosis was highest as Bcl-xLcKO CGNPs exited the cell cycle to initiate differentiation, with proliferating Bcl-xLcKO CGNPs relatively less affected. Despite the overall reduction in cerebellar growth, SHH-dependent proliferation was prolonged in Bcl-xLcKO mice, as more CGNPs remained proliferative in the second postnatal week. Co-deletion of Bax rescued the Bcl-xLcKO phenotype, while co-deletion of Mcl-1 enhanced the phenotype. These findings show that CGNPs require BCL-xL to regulate BAX-dependent apoptosis, and that this role can be partially compensated by MCL-1. Our data further show that BCL-xL expression regulates MCL-1 abundance in CGNPs, and suggest that excessive MCL-1 in Bcl-xLcKO mice prolongs CGNP proliferation by binding SUFU, resulting in increased SHH pathway activation. Accordingly, we propose that BCL-xL and MCL-1 interact with each other and with developmental mechanisms that regulate proliferation, to adjust the apoptotic threshold as CGNPs progress through postnatal neurogenesis to CGNs.

Bank regulation and systemic risk: cross country evidence

Using data for banks from 65 countries for the period 2001–2013, we investigate the impact of bank regulation and supervision on individual banks’ systemic risk. Our cross-country empirical findings show that bank activity restriction, initial capital stringency and prompt corrective action are all positively related to systemic risk, measured by Marginal Expected Shortfall. We use the staggered timing of the implementation of Basel II regulation across countries as an exogenous event and use latitude for instrumental variable analysis to alleviate the endogeneity concern. Our results also hold for various robustness tests. We further find that the level of equity banks can alleviate such effect, while bank size is likely to enhance the effect, supporting our conjecture that the impact of bank regulation and supervision on systemic risk is through bank’s capital shortfall. Our results do not argue against bank regulation, but rather focus on the design and implementation of regulation.

Contractual Discrimination in Franchise Relationships

• Franchisors strategically modify contracts for new franchisees (contractual discrimination). • Positive discrimination reduces existing franchisees perceptions of equity. • Reduced perception of equity increases freeriding and hurts performance. • Greater number of existing franchisees worsens franchisor performance. • Negative discrimination reduces freeriding, increases performance only for more franchisees. Franchisors often modify the contract terms offered to prospective (new) franchisees – to incentivize growth in the number of franchisees, to access capital, or to improve their financial performance. We argue that changes in contract terms offered to new franchisees (contractual discrimination across franchisees) can alter existing franchisees’ perceived equity in their relationship with the franchisor, and affect their freeriding. Specifically, we hypothesize, and show, that positive (negative) discrimination towards new franchisees reduces (maintains) existing franchisees’ perceived equity in their relationship with the franchisor, motivating existing franchisees to increase (eschew) freeriding – with impact on franchisors’ performance. To do so, we first take advantage of an exogenous event (the great recession of 2007-09) to study how 120 restaurant franchisors changed their contract terms to new franchisees and how that affected their post-recession net income (Study 1). We show that changes in contracts for new franchisees impact franchisors’ post-crisis performance, as a function of the number of existing franchisees. Second, with two experiments (Studies 2 and 3) with entrepreneurs and franchisees, we document that the observed changes in performance occur because contractual discrimination affects existing franchisees’ perceived equity and their intentions to free-ride. Thus, we contribute to the literature on equity in franchising relationships, on contract evolution in franchising, and its impact on financial performance.

Male employment and female intra-household decision-making: a Mexican gold mining case study

This study explores the effect of economic booms in male-dominated industries like mining on female intra-household decision-making power. Using the 2007–2008 global financial crisis as an exogenous event which led to a gold mining boom in Mexico, I find that women living in gold endowed municipalities experienced higher decision-making power contrary to some theoretical predictions. These results appear to be consistent with unitary household bargaining models which assume income pooling, as female decision-making power increased despite no changes in female labor force participation and an observed increase in male employment. Findings from a separate survey additionally show that while women residing in gold endowed states had higher decision-making power, they were also more likely to suffer from intimate partner violence (IPV). This suggests that a woman’s intra-household decision-making authority is not necessarily negatively correlated with her risk of IPV as posited in feminist theory.

COVID-19, Trade, and Health: This Changes Everything? Comment on "What Generates Attention to Health in Trade Policy-Making? Lessons From Success in Tobacco Control and Access to Medicines: A Qualitative Study of Australia and the (Comprehensive and Progressive) Trans-Pacific Partnership".

Townsend and colleagues highlighted the myriad political forces which fostered attention to health issues during negotiations to establish a new trans-pacific trade deal in Australia (the CP-TPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership], formerly known as TPP). Among the factors they identify, exporter interests and exogenous events helped to generate attention to trade-related concerns about tobacco and access medicines, and limited attention to nutrition and alcohol. These are important considerations as the United Kingdom negotiates a trade deal with the United States in haste, whilst at the same time attempting to manage the ongoing coronavirus disease 2019 (COVID-19) pandemic. In this commentary, I reflect on changing attention to trade and nutrition during the COVID-19 pandemic in light of Townsend and colleagues’ analysis. I explore scope for greater attention to nutrition in US-UK trade negotiations, and the challenges created by the vested interests of major UK and US processed food exporters. I further discuss the utility of the theoretical tools employed by Townsend and colleagues for wider debates in the political economy of health.

Does low synchronicity mean more or less informative prices? Evidence from an emerging market

We investigate a controversial and hotly debated issue of whether low stock return synchronicity (SRS) means more or less informative stock prices using three exogenous events: an anti-corruption campaign launched by the Chinese Government, a stock market crash in China, and firms’ public exposure of fraud. Investigating the changes in SRS associated with these events helps mitigate endogenous issues since these events have distinctive relationships with companies’ stock price informativeness. Our results show that firms’ SRS declines significantly after the anti-corruption campaign aiming to improve corporate governance and after firms’ public exposure of fraud. The SRS is substantially higher during and after the stock market crises. Firms located in more developed regions have lower SRS than those in less developed regions. These results consistently indicate an inverse relationship between the SRS and stock price informativeness.

Bank capital: Excess credit and crisis incidence

There are large and long-lasting negative effects on output from recurrent financial crises in market economies. Policy makers need to know if these financial crises are endogenous and subject to policy interventions or are exogenous events like earthquakes. We survey the literature about the links between credit growth and crises over the last 130 years. We then go on to look at the determinants of financial crises both narrowly and broadly defined in market economies, stressing the roles of bank capital, available on book liquidity, property price bubbles and current account deficits. We look at the role of credit growth, which is often seen as the main link between the macroeconomy and crises, and stress that it is largely absent. We look at the role of the core factors discussed above in market economies from 1980 to 2017. We suggest that crises are largely unrelated to credit developments but are influenced by banking sector behaviour. We conclude that policy makers need to contain banking excesses, not constrain the macroeconomy by directly reducing bank lending.

Exploring the association between drought and health: examples with mortality and psychosocial stress in farmers

Drought conditions are considered to be one of the most far reaching natural disasters and a leading cause for climate related mortality. Yet, there is limited research examining the drought and health relationship. This absence is partly attributed to the complexity of quantifying drought, which is slow to develop with a potential long latency and heterogeneity across space and time. As a natural event, drought cannot be explored through the perspective of a randomized trial; however, it can be evaluated through the lens of observational health data. One alternative approach is to use quasi-experimental designs to evaluate how an exogenous event, specifically a drought, impacts populations over time. Among the most vulnerable subgroups to drought exposures are agricultural populations. Close economic ties to the land, reliance on surface water, and reduced access to care can make agricultural populations increasingly vulnerable. Previous research has linked drought conditions to increased psychosocial stress and suicide. However, the quantitative evidence for droughts effect on mental health is still limited and shows uncertainty. In addition, almost no research on drought and mental health exists for U.S. populations. In this talk, we will explore the association between drought and health outcomes through the quasi-experimental approach of interrupted time-series. We will discuss how to estimate the association between drought and mortality using a temporally robust daily data set across a 14-year period. In a second example, we will discuss the challenges of evaluating drought and health using more temporally limited data. In this example, we explore psychosocial stress and drought conditions among a cohort of 518 Midwestern farmers using 3.5 years of repeated surveys for occupational stress. Our goal is to present the importance of drought and health research, and explore methodology to evaluate this complex environmental exposure.

To the edge of gaze and beyond: Visual distraction outside the oculomotor range

Neurophysiological studies demonstrated that attentional orienting is performed by fronto-parietal brain areas which also play an important role in oculomotor control (e.g. LIP, FEF). Accordingly, several studies claimed that exogenous attention can only be allocated to where we can potentially make an eye movement, i.e. within the oculomotor range. We tested this assumption by assessing the disruptive effect of a salient distractor at locations within and beyond participants' oculomotor range. Participants rotated their heads ~38° leftwards to prevent them from performing large rightward saccades. The required head rotation angle was determined individually prior to the experiment and monitored with an electromagnetic motion tracking device. In this posture, participants fixated the screen center and focused their attention on a location on the left side of the screen, where they had to discriminate the orientation of a visual noise patch. While assessing visual orientation sensitivity — an established proxy of visual attention — at this endogenously attended location, we flashed a salient cue either at the attended location or at various locations inside or outside their oculomotor range. We found that whenever the salient cue occurred at a location other than the endogenously attended location, it withdrew visual attention and significantly hampered endogenous attentional orienting. Crucially, this disruptive effect occurred regardless of whether the cue was presented within or beyond participants' oculomotor range, demonstrating that exogenous events equally grab our attention both inside and outside the oculomotor range. Since spatial exogenous attention was attracted unrestrictedly toward locations to which no saccade could be executed, the coupling of attention and eye movement control presumably is less tight than, for example, the prominent Premotor Theory of Attention would suggest. Rather, attention can be shifted freely over the entire visual range, independent of pathological and physiological limitations of the eye movement system.

Does Liquidity Management Induce Fragility in Treasury Prices: Evidence from Bond Mutual Funds

Bond mutual funds holding illiquid assets (e.g., corporate bonds) actively manage their positions in Treasuries to buffer redemption shocks. We argue and show supporting evidence that this liquidity management practice can induce fragility in Treasury prices. We find that Treasury pairs commonly held by bond funds exhibit higher return comovement than pairs with little fund common ownership. This effect is more pronounced during downside markets or when funds experience large outflows, but is weak for corporate bond pairs. We address endogeneity concerns by exploiting two plausibly exogenous events: the outbreak of COVID-19 and the 2003 mutual fund scandal.

Value of Local Showrooms to Online Competitors

In this study, we quantify the value of physical showrooms to online competitors by investigating how the presence and absence of local showrooms impact customers’ search and purchase behaviors with online competitors. By using an exogenous event of a large retailer’s offline market exit and a unique dataset that captures customers’ online browsing and purchasing activities before and after the event, we empirically examine the changes in online search and sales made by customers who lived within neighborhoods where local showrooms closed. We devise several search-oriented measures to complement the conventional sales-based measures in order to quantify the value of a showroom more completely. Using a difference-in-difference approach, we do not find a significant impact on online competitors’ sales when a neighboring showroom closes. However, we observe a significant increase in customers’ online search intensity as well as an increase of direct navigations to Amazon in the absence of local showrooms. We discuss a wide range of implications both for online and offline retailers based on our results.

Potential impacts of free trade areas and common currency on sustainable agricultural export in Africa

This study probes the potential impacts of free trade areas and common currency in fostering agricultural export based on data from 45 countries in Africa from 1996 to 2018. The main concern is to determine whether exogenous events like becoming a member of Arab Mighreb (AMU), Community of Sahel‐Saharan States (CS‐SS), Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of Central African States, Intergovernmental Authority on Development (IGAD), Economic Community of West African States (ECOWAS), Southern African Development Community (SADC) or becoming a member of African Continental Free Trade Area (AFCFTA) can potentially accentuate agricultural export. From the main finding, there is evidence that membership becoming membership to AMU, CS‐SS, AMU, CEN‐SAD, COMESA, EAC, ECCAS, ECOWAS, IGAD or part of SADC has a positive marginal impact on agricultural export, its influence is not immediate. Also, the positive marginal impact on agricultural export for becoming a member of AFCFTA continues to decline after 1 or 2 years than the current year. Common currency and economic growth have a positive marginal impact on agricultural export for the period covered by the study.