Level Of Information Uncertainty Research Articles

Does betting against beta strategy work in major Asian Markets?

This study examines the betting against beta (BAB) anomaly and its drivers for five major Asian markets, using data from January 1999 to January 2020. We find positive raw returns-based BAB premiums for India, China, and South Korea, while they are negative in Japan and Indonesia. Cross-sectional differences in BAB premiums seem to be positively associated with the level of information uncertainty and financial market development. Decomposition of the BAB phenomenon shows that BAB premiums are driven by betting against correlation (BAC) premiums in India while betting against volatility (BAV) premiums drive it in China and S.Korea. Funding liquidity risk and margin constraints drive positive BAC in India and Indonesia. Positive BAV in China is driven by MAX (lottery behavior), while idiosyncratic volatility (IVOL) and MAX together drive them in S.Korea. Negative BAB in Japan and Indonesia is mainly due to negative BAV premiums caused by MAX in Japan and both IVOL and MAX in Indonesia. CAPM-based risk-adjusted BAB premiums are not significant for S.Korea, Japan, and Indonesia, while in India and China, they are significant but get explained by the profitability factor. We conclude that the BAB strategy is not universally applicable, and its drivers vary across sample markets.

Impact of self‐service technology in designing a service delivery system

AbstractSelf‐service technologies (SSTs) have been widely adopted in industries that require the delivery of physical products by services, in which consumers evaluate a product for both the product value and the service value. A typical service delivery system usually involves sales agents and/or self‐service technologies, for example, online services and kiosks, to serve consumers by a coproduction process. In other words, both the sales agent (or self‐service machine) and the consumer should exert effort, with corresponding service costs. By modeling the coproduction output with a Cobb–Douglas production function, we establish a principal–agent model to study the value of self‐service technologies in designing a service delivery system wherein the sales agent's service cost is private information. We first characterize the main trade‐off between the sales agent and the self‐service machine when the firm provides only one service channel. Then, we analyze the value of the self‐service machine when the firm can provide both service channels. We find that, interestingly, the firm may possibly provide both service channels, that is, services offered by the sales agent and the self‐service machine, when the level of information uncertainty is high, and the self‐service machine's service cost is intermediate. Moreover, when both service channels are offered, only the efficient sales agent will be contracted, and the inefficient sales agents are screened out of the market by the self‐service machine; that is, the self‐service machine can help the firm eliminate the information rent. We also investigate how the firm's service weight in the coproduction process and information uncertainty influence the consumer surplus, firm's choices, contract parameters, and resulting profits. Our results are shown to be robust when our model is extended to consider a single‐contract strategy, contracting on effort, a continuous sales agent type, and a general coproduction function.

Hypothesis on the informative principles of voluntary and involuntary attention: on the theory of non-systems and causal environments in causal dualism

The subject of this research is certain informative principles of functionality of human nervous system. In the limelight is the interdependence of consciousness and information, as well as the question in the spirit of anti-physicalist arguments: whether the conscious processes are informative, and thus physical, or require a categorical apparatus for description? The first part of the article discusses possible wording of some informative principles of functionality of nervous system that answer the question “why” rather than “how”. The second part is dedicated to the general classification of causal environments, as well as description of conscious processes within the framework of new possible terminology. A number of hypotheses is advanced on the informative mechanisms of involuntary and voluntary attention. With regards to involuntary attention, the author examines the mechanism for resource conservation, or filtering information, which suggests that the nervous system tends to consume resources for processing the rarer – and more information capacious messages. Such position complies with the law of conservation of energy. Voluntary attention is viewed on the basis of information interpretation of the Le Chatelier’s principle. Voluntary attention, resulting conscious actions, and responses of the nervous system (including creativity) are considered as informational messages aimed at alleviation of the impact of external environment, namely the level of information uncertainty. Such information approach prompts to view consciousness as a non-system or causal environment, within which causality is transmitted without transmitting information. The article provides the variant of classification of causal environments that may contribute to further development of non-informative (non-physicalist) approach towards the problem of consciousness.

Do geopolitical tensions instigate mindless following in stock markets? An empirical enquiry into the indices of CNX Nifty HFT

Geopolitical tensions between nations play a crucial role in triggering volatility and affecting the investors’ behavior in stock markets. This empirical work attempts to detect the traces of herding and bubble embedded in the Indian stock indices of CNX Nifty 50 and CNX Nifty 100 (both in High-Frequency Trading domains) during the latest events of geopolitical tensions escalated between India-China and India-Pakistan. An event window approach is employed to capture the impact of these events on herding behavior and information uncertainty in the considered stock indices. Multifractal Detrended Fluctuation Analysis (MFDFA) is applied to compute the Hurst value in all the trading days of the event window. The results of both indices exhibit conclusive evidence of herding and bubble formation during the overall period of geopolitical tensions between India-China and India-Pakistan. However, the degree of herding in the stock indices intensifies to a profound pattern when the tensions between India and China escalated into deadly violent clashes, and also during the heightened tensions between India and Pakistan that eventually ended up in airstrikes across the boundaries. The overall level of information uncertainty depicted by entropy is within control. The volatility in these stock indices has been confirmed to follow a unidirectional pattern. AcknowledgementsThe authors express their sincere thanks of gratitude to Dr. Bikramaditya Ghosh (Professor, Department of Finance and Analytics, RV Institute of Management, Bangalore, India) for his instrumental role in encouraging and motivating them to accomplish this research task. The authors also extend their sincere thanks to Dr. Manu K.S. (Assistant Professor, School of business and management, CHRIST (Deemed to be university), Bangalore, India) for his continued support throughout this empirical investigation.

Глобальна ентропія та поведінкові реакції економічних агентів в умовах пандемії СОVID-19

The shock increase in global entropy is caused by the lack of reliable information about the factors that determine the course of the COVID-19 pandemic. The analysis of correlations indicates a significant weakening of the relationship between the number of infected and deaths, as well as the dynamics of economic activity, which began to recover in July-August 2020. There is a direct relationship between the level of information uncertainty and the economic activity of agents. The lack of information about the COVID-19 pandemic is offset by the formation of an information space for forecasts and scenarios that formed the overall picture of process controllability. At different stages of the pandemic the behavioral reactions of economic agents are represented by: ignoring the danger of a pandemic; an attempt to protect your economic system from changes; using traditional stabilization methods; the formation of a strategic approach to the organization of economic activity.

Analyst Distance and Credit Rating Consistency

We investigate the effect of analyst distance in the credit rating industry and show that issuers with analysts located in more distant offices have lower default rates than issuers with closer analysts and the same rating. Our results are robust to an analyst home bias and suggest that more distant analysts are subject to a local informational disadvantage when conducting their rating analysis. Given an asymmetric reputational cost function that implies penalizing an overestimation of credit quality more heavily than an underestimation, we can demonstrate that it is rational for analysts to assign more conservative ratings for higher levels of information uncertainty.

Evaluating the social value of online health information for third-party patients: Is uncertainty always bad?

Online health interactions (OHIs) can benefit patients, physicians, and society. However, little research has been conducted that studies the social value of OHIs for third-party patients who view previous OHIs concerning similar health issues to theirs. Drawing on the literature on social support and information uncertainty, this study established a theoretical model to explore the roles of treatment information, prevention information, and emotional support in determining information usefulness perceived by third-party patients, and whether such relationships are contingent on information uncertainty. The model was tested using “health questions and answers” textual data from 1,848 OHIs. The results indicate that prevention information and emotional support significantly improve information usefulness perceived by third-party patients. When the level of information uncertainty regarding physicians’ replies is high, the effect of treatment information is strengthened and the effect of emotional support is weakened, indicating both the bright and dark side of information uncertainty. This study has implications for practitioners and contributes to the literature on online health information, social support, information science, and information uncertainty.

Investment decisions and debt financing under information uncertainty

This study examines how information uncertainty influences investment decisions. In contrast to prior studies, which assume no information uncertainty, our model includes a discrepancy in valuing debt between shareholders and debtholders at the time of debt issuance. We derive the values of corporate securities and the optimal investment threshold and coupon under information uncertainty. We show that compared with the absence of information uncertainty, debtholders value debt less than shareholders do, and hence, shareholders should contribute more investment funds. Debt financing restraints due to information uncertainty lead to delayed investment. We find that information uncertainty plays a mitigating role in shareholder-debtholder conflicts over investment policy. Moreover, the information uncertainty costs that shareholders incur increase sharply with the level of information uncertainty.

Heaping on Dividends: The Role of Dividend Size and Information Uncertainty

The authors examine whether a cognitive bias influences dividend policy. They find that managers use a heaping heuristic when choosing the amount of their firm’s dividend. Heaping is a human error or bias to round numbers even though precise values are desired. This bias leads to dividend distributions clustered at specific amounts. Dividend size and the level of information uncertainty faced by management help explain the likelihood of heaping. The authors also observe that heaped dividends are “sticky” and altered less frequently, and when there is a dividend change, heaped dividends are more often switched to another heaped amount.

Risk management of the alternative power engineering

The article summarizes the experience of risk neutralization arising due to the power generation from the alternative sources solar, wind, hydraulic power engineering on the basis of ebbs and flows, the use of biomass power plants, etc. At the same time, the tool for blitz diagnostics of risks of the alternative power engineering is proposed in order to substantiate the economic feasibility of investments. The results of the risk assessment application of alternative power engineering reduce the level of information uncertainty relating to the transition to new energy sources or diversification of energy supply.

Heaping on Dividends: The Role of Dividend Size and Information Uncertainty

In this paper we contribute to a line of literature that examines behavioral biases that impact important corporate decisions. Our paper builds on prior articles that examine heaping or rounding of EPS forecasts. Herrmann and Thomas (2005), Bamber, Hui and Yeung (2010) and Dechow and You (2012) observe that firm managers and analysts systematically round EPS forecasts. They also find more rounding for EPS forecasts with larger magnitude, and when management or analysts face higher levels of information uncertainty. In this study we examine whether dividend policy is also affected by rounding and the heaping heuristic. The previous literature that examines heaping related to corporate earnings focuses on heaping in earnings forecasts, however our study focuses on heaping in actual distributed dividends that directly impact key firm characteristics such as firm capital structure, investor returns and overall firm performance. From 1926 through 2015 we report 51.40% of dividends are heaped. In the earlier years, dividends are almost always heaped, but heaping declines through time. In some years 100% of quarterly dividends are heaped. We find heaping is significantly related to dividend size, and the level of information uncertainty faced by firm management. Of the uncertainty metrics, inverted firm size has the strongest relation with the likelihood of heaping. We also observe that heaped dividends are altered less frequently, and when there is a dividend change to a previously heaped dividend it is more often an increase or decrease to another heaped amount.

Understanding the Climate-Sensitive Decisions and Information Needs of Freshwater Resource Managers in Hawaii

Abstract Understanding how climate science can be useful in decisions about the management of freshwater resources requires knowledge of decision makers, their climate-sensitive decisions, and the context in which the decisions are being made. A mixed-methods study found that people managing freshwater resources in Hawaii are highly educated and experienced in diverse professions, they perceive climate change as posing a worrisome risk, and they would like to be better informed about how to adapt to climate change. Decision makers with higher climate literacy seem to be more comfortable dealing with uncertain information. Those with lower climate literacy seem to be more trusting of climate information from familiar sources. Freshwater managers in Hawaii make a wide range of climate-sensitive decisions. These decisions can be characterized on several key dimensions including purpose (optimization and evaluation), time horizon (short term and long term), level of information uncertainty (known, uncertain, deeply uncertain, and completely unknown), and information type (quantitative and qualitative). The climate information most relevant to decision makers includes vulnerability assessments incorporating long-term projections about temperature, rainfall distribution, storms, sea level rise, and streamflow changes at an island or statewide scale. The main barriers to using available climate information include insufficient staff time to locate the information and the lack of a clear legal mandate to use the information. Overall, the results suggest that an integrated and systematic approach is needed to determine where and when uncertain climate information is useful and how a larger set of organizational and individual variables affect decision making.

Exchange Rate Exposure: Do Asymmetries and Volatilities Matter? Evidence from the Taiwan Stock Market

This study investigates foreign exchange exposure and the impacts of asymmetries and volatilities on the daily returns of Taiwanese non-financial firms from 1990 to 2010. 88.8% of our samples are negatively exposed, companies benefiting from an appreciation of the domestic currency. 14% of the firms have an asymmetrical profile. If this percentage is not negligible, Taiwanese firms exhibit mainly a symmetric exposure. Currency volatilities have a significant impact for only 7.5% of the firms, but for 37.38% of the sample, we observe the existence of an asymmetric volatility. Among them, 65% exhibit a negative sign meaning that good news have a greater impact on the volatility than bad news, which seems counter-intuitive. These results may be explained by a chasing good news behavior and the effects of a high level of information uncertainty.

Positive‐feedback trading activity and momentum profits

PurposeThe purpose of this paper is to examine positive‐feedback (PF) behavior and its relationship to momentum profitability and information uncertainty.Design/methodology/approachUsing the behavioral function of rational traders and feedback traders, the authors jointly estimate the mean and conditional variance equations of the GARCH model to derive the positive‐ and non‐positive‐feedback coefficients, respectively. In each six‐month period, the number of PF stocks were then calculated as a fraction of the total number of stocks in that period. The authors then investigate whether day‐to‐day PF trading activities vary across different momentum portfolios by calculating the percentage of PF stocks in each decile portfolio.FindingsThis study finds that about 9.4 per cent of stocks exhibit PF trading activities and that these activities have a more profound effect on stocks with a higher level of information uncertainty. The finding shows that the percentage of stocks with PF trading is higher in the portfolios of extreme losers than in the portfolios of extreme winners. The evidence suggests that stocks exhibiting PF trading activities subsequently experience significantly higher momentum returns.Originality/valueThis paper presents evidence to test whether a relationship exists between short‐term PF trading and future momentum profitability. Since PF traders tend to chase price movements, PF trading is more likely to cause stock prices to further diverge from the firm's fundamentals and, therefore, give rise to stock return momentum. This phenomenon appears to be more profound in this study when there is a higher level of information uncertainty.

Divergence of Opinion, Short-Sale Constraints and the Weekend Effect

This paper seeks to provide a new explanation for one of the most puzzled stock market anomalies: the weekend effect. As hypothesized by Miller (1977), stocks with higher divergence of opinion and more binding short-sale constraints are likely to be overpriced in the presence of information uncertainty. I argue that the weekend is an event that increases the ex-ante but reduces the ex-post uncertainty. Hence conditional on divergence of opinion and short-sale constraints, optimistic views are more likely to be reflected in the price immediately before the weekend in the presence of a rising level of information uncertainty, thereby inflating the share price on Friday. The share price is subsequently reverted back to the equilibrium when uncertainty is resolved through the passage of the weekend, therefore causing the famous Monday effect. Using both cross-sectional and time-series tests, I find that the Miller (1977) hypothesis is indeed an explanation for the weekend effect. In addition, this explanation is able to reconcile some previously documented patterns on returns surrounding the weekend, such as the negative relation between firm size and the weekend effect, the positive relation between short interest and the weekend effect and more negative Monday returns in bearish markets.

Disclosures of Insider Purchases and the Valuation Implications of Past Earnings Signals

ABSTRACTThis study examines whether disclosures of insider equity purchases on Securities and Exchange Commission (SEC) Form 4 resolve uncertainty regarding the valuation implications of reported earnings. Defining information uncertainty as ambiguity about firm value arising from low earnings precision, I predict and find that insider purchase filings trigger more positive market reactions in firms with greater information uncertainty (lower quality accruals). After controlling for future earnings changes, I further find that market reactions to purchase filings are predictably associated with prior earnings changes. The strength of this effect is increasing in the magnitude of insider purchases, as well as the level of information uncertainty. Overall, these findings suggest that, in addition to signaling future earnings information, Form 4 purchase filings help investors learn about the valuation implications of past earnings signals.Data Availability: All data are available from public sources.

Investing in Chapter 11 Stocks: Trading, Value, and Performance

This paper addresses several questions about Chapter 11 stocks regarding their trading environment, fundamental value, and performance. First, we show that there exists active trading for Chapter 11 stocks throughout the duration of the bankruptcy process. Second, applying option theory to the valuation of bankrupt equity, we find that equity value of bankrupt firm after filing is positively related to asset value, asset volatility, risk-free rate, and expected duration, and it is negatively related to liabilities. Furthermore, similar to the payoff of out-of-money calls, the return correlation between bankrupt stocks and their matching samples exhibits strong non-linearity: significantly positive when the matching sample performs well and zero otherwise. Third, we find that investing in Chapter 11 stocks incurs large losses. Consistent with the theories of heterogeneous beliefs and limits-to-arbitrage, stocks with higher levels of information uncertainty and more binding short-sale constraints experience more negative returns during the Chapter 11 process.

Market reactions to asset sales:: Effects of the Joint Venture Prerequisite

We analyze the strategic issue of inter-firm resource transfer – i.e., the methods firms use to buy and sell assets. We introduce a typology of asset sale mechanisms delineated by levels of information uncertainty. We analyze this typology, by exploring how firms choose among the mechanisms and by exploring how they are rewarded by the financial markets for their choices. We find that factors involving the level of information asymmetry, the firm’s bargaining power, the firm’s current opportunities and pressures, and the firm’s ability to engage in the various mechanisms, all correlate with both choices and rewards.

Comparing deterministic, robust and online scheduling using entropy

We conjecture that when the uncertainty of scheduling information increases, one should change from deterministic, through robust to, finally, online scheduling techniques. Previously, extensive mathematical investigations have been carried out on the stability of a deterministic schedule for uncertain operation processing times. In this paper, we will use an empirical approach and an entropy measure to justify the transition between deterministic, robust and online scheduling. The use of an entropy measure in our context can be perceived, in a broader sense, as a pro-active approach to deal with changes in the level of information uncertainty and relative importance of each term in the total schedule execution cost. The level of information uncertainty may change due to the performance deterioration of processors (machines or human) and the replacement of old machines with new ones; and the changes in relative importance of cost elements may be due to changes in shop floor priorities and pressure from partners in the supply chain network. One can decide upon the scheduling strategies to be employed based on the latest entropy value of the information considered and the relative importance of each cost term.