Market-wide Changes Research Articles

Medicare Advantage Enrollment and Beneficiary Risk Scores: Difference-in-Differences Analyses Show Increases for All Enrollees On Account of Market-Wide Changes.

Medicare adjusts payments to Medicare Advantage (MA) insurers using risk scores that summarize the relationship between fee-for-service (FFS) Medicare spending and beneficiaries’ demographic characteristics and documented health conditions. Research shows that MA insurers have increasingly documented conditions more thoroughly than traditional Medicare—resulting in higher payments to insurers—but little is known about what factors contribute to diverging risk scores. We apportion that divergence between market-wide increases and increases that vary with length of MA enrollment. We also examine whether effects vary across plan types and whether the enrollment duration effect is contingent upon remaining with the same insurer. Using Medicare administrative data from 2008 to 2013, we employ a difference-in-differences model to compare the growth in risk scores of Medicare beneficiaries who switch from FFS to MA to that of beneficiaries who remain in FFS. We find that the effect of MA enrollment on risk scores increased from 5% in 2009 to 8% in 2012 and that continuous enrollment in MA was associated with an additional 1.2% increase per year, regardless of continuous enrollment with an insurer. Thus, even among those who switched to MA in 2009, enrollment duration comprised less than one-third of the coding intensity difference in 2012. We also find that risk scores grew faster in areas with greater MA penetration and among Health Maintenance Organization enrollees. Overall, our findings suggest that market-wide factors contributed most to the increasing divergence between FFS and MA risk scores.

Stranger Times: The Impact of Relativistic Time Concepts on the Time Value of Money

The notion that time is relative has been widely accepted by physicists since Albert Einstein formulated his theory of relativity in 1905. However, many other scientific disciplines, like finance and economics, have thus far disregarded relativistic time concepts. In this paper, I show how a relativistic approach towards time influences the core principle of finance theory, the time value of money concept. I show that, to avoid arbitrage, relativistic time concepts call for an adjustment to time value of money calculations – the concept of proper interest. Adjusting time value of money functions leads to a market-wide changes in financing costs for firms. Furthermore, I propose that variation in life expectancy is a proxy for time dilation. Therefore, I use a relativistic time concept to amend the Lucas Paradox and show that current methods of explaining the paradox might gravely underestimate its magnitude.

SEC enforcement in the PIPE market: Actions and consequences

In 2002, the SEC launched enforcement actions against investors involved in PIPE (Private Investments in Public Equity) transactions. We describe the legal ramifications of this enforcement initiative, and document dramatic contemporaneous market-wide changes in the contractual structure of PIPEs. PIPEs in the post-action period included fewer aggressive repricing rights and more trading restrictions. However, PIPEs in the post-action period also included more investor protections and fewer issuer rights. These results suggest that the SEC’s enforcement enticed investors to substitute non-SEC-targeted contractual features for targeted ones. Our paper sheds new light on the role of legal enforcement on financial contract design.

Ibbotson’s Default Premium: Risky Data

Ibbotson’s “Stocks, Bonds, Bills and Inflation” dataset is widely used because it provides monthly U.S. financial data series going back to as early as 1926. In this dataset, the “default premium” is calculated as the difference between the total returns on long-term corporate bonds and long-term government bonds. This excess return is used in empirical research to represent the compensation for default risk exposure. In this article we show that this default premium is seriously flawed in two ways: 1) It is not based on subtracting maturity-matched government bonds from corporate bonds, and therefore is contaminated with a considerable interest rate component, and 2) it is based on very high-quality corporate bonds and hence rather insensitive to market-wide changes in default risk. These maturity and quality biases seriously limit the use of the Ibbotson default premium series in empirical research, because instead of reflecting pure default risk, it also (negatively) reflects interest rate risk.

SEC Enforcement in the PIPE Market: Actions and Consequences

The SEC launched in 2002 enforcement actions against investors involved in PIPE (Private Investments in Public Equity) transactions. We describe the legal ramifications of this enforcement initiative, and document dramatic contemporaneous market-wide changes in the contractual structure of PIPEs. PIPEs in the post-action period included fewer aggressive repricing rights and more trading restrictions. However, PIPEs in the post-action period also included more investor protections and fewer issuer rights. These results suggest that the SEC’s enforcement enticed investors to substitute non-SEC-targeted contractual features for targeted ones. Our paper sheds new light on the role of legal enforcement on financial contract design.

Liquidity Changes around Seasoned Equity Issuance: Public Offerings versus Private Placements

I investigate whether firms that issue equity, in public offerings or private placements, have improved on liquidity in the secondary market. Transaction costs, price impacts, and trading activity are examined. Results show that public offering stocks become considerably more liquid in all three dimensions. For private placement stocks, there is some evidence that trading volume increases, but effective spread and temporary price impact decline less than market-wide changes. Furthermore, I study the behaviors of participants in the newly issued equity market. Analyses indicate that underwriters, analysts, and market makers all contribute to liquidity changes, but in different aspects.

Racial and Ethnic Differences in Patient Assessments of Interactions With Providers: Disparities or Measurement Biases?

Patient assessment surveys have established a primary role in health care quality measurement as evidence has shown that information from patients can affect quality improvement for practitioners and lead to positive marketwide changes. This article presents findings from the recently released National Healthcare Disparities Report revealing that although most clinical quality and access indicators show superior health care for non-Hispanic whites compared with blacks and Hispanics, blacks and Hispanics assess their interactions with providers more positively than non-Hispanic whites do. The article explores possible explanations for these racial/ethnic differences, including potential pitfalls in survey design that draw biased responses by race/ethnicity. The article then suggests strategies for refining future research on racial/ethnic disparities based on patient assessment of health care.

Default Probabilities and Expected Recovery: An Analysis of Emerging Market Sovereign Bonds

We develop a simple bond pricing model to map the prices of individual EME sovereign bonds into term structures of implied (risk-neutral) default probabilities and expected recovery rates. Simple indices of bond spreads are found to be closely correlated with long-term risk neutral default probabilities, so may provide a straightforward way of monitoring shifts in investors' perceptions. But short-term risk neutral default probabilities behave quite differently, implying that there are periods of market-wide changes in volatility that do not show in measures of average spreads. Estimation of time-varying recovery rates appears to work best for countries in crisis, and suggests that expected recovery falls as the prospect of default becomes imminent. Movements in the median time to default generally appear plausible, both across time and across countries.

The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare

This paper investigates the effects of market-wide changes in health insurance by examining the single largest change in health insurance coverage in American history: the introduction of Medicare in 1965. I estimate that the impact of Medicare on hospital spending is over six times larger than what the evidence from individual-level changes in health insurance would have predicted. This disproportionately larger effect may arise if market-wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles. I present some evidence of these types of effects. A back of the envelope calculation based on the estimated impact of Medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period.

Factors affecting the stock price performance of share issued privatizations

Shareholders in many share issued privatizations (SIPs) have enjoyed substantial increases in the value of their investments. This study examines the factors that influence the long-run stock price performance of an international sample of SIPs, focusing on three-year buy and hold returns. After controlling for market-wide changes in stock prices, one finds that the relative size of the company has a negative effect on stock price performance, retained government ownership has a positive effect, the presence of a golden share has a negative effect, initial underpricing has a positive effect, and the timing of the privatization has no effect. Performance also depends on the industry and home country.

The transferability of logit-based share elasticities for evaluating congestion pricing

The sensitivity of travel demand to changes in the generalized cost of travel can be tailored, through disaggregate mode choice models, to reflect specific trip conditions. The logit mode split function can provide share elasticities that vary not only with tripmaker characteristics, but also with travel conditions encountered along the individual route. Frequently however, average estimates of elasticities are used to predict aggregate or market wide changes in mode share which may result from congestion surcharges. Grouping individual elasticities into market averages is mandated by lack of time and money, or insufficient detail in the travel data. To the extent that logit-based elasticities reflect wide variations across tripmaker and trip characteristics, group averaging can introduce significant distortions in obtaining an accurate market response to travel cost modifications. In the absence of transferability, a reliable evaluation of congestion pricing strategies would be difficult to obtain. The main objective of this paper is to compare a cross-sectional sample of point elasticities obtained from a binary logit function against an overall average and to assess the nature of any variability in terms of selected contextual travel variables.