Negative Wealth Research Articles

Internet marketing in healthcare: The case of generic drugs and the contagion effect

ABSTRACT Background: Our work is motivated by prior evidence of significant negative wealth effects reported by Jambulingam and Sharma, based on the Food and Drug Administration (FDA) 2 April 2009, warning letters to 14 major pharmaceutical companies pertaining to search engine advertising, in an effort to stop one critical dimension of internet marketing by pharmaceutical industry. Consequently, we expect the overall market for branded drugs to shrink. This shrinkage in future will affect market for generics, in turn, negatively impacting future cash flows of generic firms – a contagion effect. Materials and methods: We test contagion effect by measuring changes in shareholders’ wealth of a select sample of large generic firms around regulatory event. Using standard event-study methodology, we investigate whether this contagion wealth effect, due to internet advertising restrictions on pharmaceutical firms, do carry over to generic firms since they do not advertise themselves. Results: Our results show a significant and negative wealth effect (contagion) for shareholders of generic firms on event day 0. We also report this shareholder wealth loss, in dollar terms, to be of 783 million, on Event day 0 (when FDA posts the letter). Conclusion: This study privides empirical evidence that shows that internet marketing has significant impact on both branded and generic industry. Our findings carry implications for policy makers and regulators as further regulations are considered.

Wealth Shocks and MPC Heterogeneity

We use the responses of a representative sample of Dutch households to survey questions that ask how much their consumption would change in response to unexpected, permanent, positive or negative shocks to their home value. The average MPC is in the 2.1-4.7% range, in line with econometric estimates that use housing wealth and consumption realizations. However, our analysis uncovers significant sample heterogeneity, with over 90% of the sample reporting no consumption adjustment to positive or negative wealth shocks. The relation between the MPC from wealth shocks and cash-on-hand is negative, consistent with models with precautionary saving and liquidity constraints.

Wealth Shocks and MPC Heterogeneity

We use the responses of a representative sample of Dutch households to survey questions that ask how much their consumption would change in response to unexpected, permanent, positive or negative shocks to their home value. The average MPC is in the 2.1-4.7% range, in line with econometric estimates that use housing wealth and consumption realizations. However, our analysis uncovers significant sample heterogeneity, with over 90% of the sample reporting no consumption adjustment to positive or negative wealth shocks. The relation between the MPC from wealth shocks and cash-on-hand is negative, consistent with models with precautionary saving and liquidity constraints.

Anatomy of Sudden Yen Appreciations

The yen is an important barometer for the Japanese economy. Depreciations are typically associated with favorable economic developments such as increased corporate profits, rising equity prices, and upward pressure on domestic consumer prices. On the other hand, large and sharp appreciations run the risk of lowering actual and expected inflation, squeezing corporate profits, generating a negative wealth effect through depressed equity prices, and reducing confidence in the Bank of Japan's efforts to reflate the domestic economy and achieve the inflation target. This paper takes a closer look at underlying drivers of rapid yen appreciations, highlighting the key role of carry-trade and the zero lower bound as important amplifiers.

Crime-Related Exposure to Violence and Social Preferences: Experimental Evidence from Bogotá

In this paper, we study the relationship between exposure to violence (ETV) and pro-social behavior using two artefactual field experiments in Bogota, Colombia. We focus on two dimensions of ETV: trauma and negative economic shock. In our first experiment, after manipulating a recall of ETV, we collate a number of decisions from a trust game and a dictator game. Using a design inspired by Falk and Zehnder (2013), we compare the measures of in-group bias at the district level. In our companion experiment, we use a similar design, which includes a Prisoners’ Dilemma, and we introduce a 2-by-2 design where we attempt to disentangle the effect of trauma and a negative wealth shock. Our results suggest that there is a positive relationship between ETV and pro-social behavior, driven by both trauma and shock. Finally, there is evidence of in-group bias at the district level in Bogota, but this is task specific. When we explore possible mediating variables proposed by the literature, we find that only beliefs seem to be affected, however the result is not robust. On the other hand, evidence is consistent with a generalized explanation based on either the dual system theory or the role of negative emotions.

Event Study of Effect of Merger Announcement on Stock Price in Nepal

Events like merger and acquisition affect the value of merging firms and also generate a positive or negative wealth effect for shareholders of firms involved. The purpose of this study is to investigate whether a merger announcement has generated wealth effects for the shareholders of bidding and target firms as well as it has aimed to assess the impact on overall banking sector. Two models; mean adjusted model and market risk adjusted model has been used in the study employing the ‘event study’ methodology to examine whether there is presence of abnormal return associated with merger announcement. In this method, 50 days premerger and 30 days post merger period is assumed as estimation period and (-15 and +15) days are taken as the window period. Fifteen financial institutions which entered into merger between years 2010 to 2012 are selected as sample. The findings of this study demonstrated that surrounding the announcement of merger proposals, the premerger abnormal return of individual firms is not significant to zero i.e. return is not affected by the merger announcement. Similarly, the abnormal return of bidding and target firms is not significant which indicates there is no impact of merger announcements on shareholder wealth in Nepalese capital market. Finally, the abnormal return during the premerger and post merger period of individual firms as well as the overall banking sector shows the same result, there is no significant difference on return before and after the merger announcement.

The Causal Influence of Investment Goals on the Disposition Effect

The disposition effect describes investors' tendency to realize gains more frequently than losses. While it is one of the most robust findings in finance research and there is an extensive body of literature examining its theoretical foundation, relatively little attention so far has been paid to ways in which the disposition effect could be mitigated. This is surprising considering that the disposition effect entails negative wealth consequences. Therefore, we conduct an experiment that investigates the influence of investment goals on the disposition effect. We find that subjects who are provided with a specific investment goal exhibit a reversed disposition effect. This result stems from the fact that those subjects realize paper gains less frequently. Their behaviour with regards to losses, however, does not change significantly.

The Affine Wealth Model: An agent-based model of asset exchange that allows for negative-wealth agents and its empirical validation

We present a stochastic, agent-based, binary-transaction Asset-Exchange Model (AEM) for wealth distribution that allows for agents with negative wealth. This model retains certain features of prior AEMs such as redistribution and wealth-attained advantage, but it also allows for shifts as well as scalings of the agent density function. We derive the Fokker–Planck equation describing its time evolution and we describe its numerical solution, including a methodology for solving the inverse problem of finding the model parameters that best match empirical data. Using this methodology, we compare the steady-state solutions of the Fokker–Planck equation with data from, inter alia, the United States Survey of Consumer Finances over a time period of 27 years. In doing so, we demonstrate agreement with empirical data with an average error less than 0.16% over this time period. We present the model parameters for the US wealth distribution data as a function of time under the assumption that the distribution responds to their variation adiabatically. We argue that the time series of model parameters thus obtained provides a valuable new diagnostic tool for analyzing wealth inequality.

Do Robots Increase Wealth Dispersion?

We demonstrate that increased automation has a significant negative impact on distribution of wealth. Households who are more exposed to industrial robots at work accumulate less wealth and experience greater downward mobility in the wealth distribution. The negative wealth effects of robots are not merely a consequence of differences in earned incomes or differential saving rates. We provide evidence that the adverse effects of rapid robotization on individual workers' human capital, and thereby, on their financial risk taking and investment behavior represent an additional important mechanism. Overall, the portfolio channel amplifies the inequality-enhancing effects of increased automation.

The transmission of monetary policy through redistributions and durable purchases

Using a tractable OLG model with government debt, we study a redistribution channel for the transmission of monetary policy. Expansionary open-market operations generate a negative wealth effect, increasing households’ incentives to save and pushing down the real interest rate. This leads to a substitution towards durables, generating a temporary boom in the durable-good sector. With search and matching frictions, the fall in interest rates causes an increase in labor demand, raising aggregate employment. The model mimics the empirical responses of key macroeconomic variables to monetary policy interventions. The fiscal policy stance plays a key role in the transmission mechanism.

Optimal consumption and portfolio selection with negative wealth constraints, subsistence consumption constraints, and CARA utility

We consider the optimal consumption and portfolio selection problem with constant absolute risk aversion (CARA) utility. The economic agent in this model receives constant labor income, and her economic behavior is restricted on consumption and wealth, which are called the subsistence consumption constraint and the negative wealth constraint. We use the convex duality method to derive the value function and the optimal policies in closed-form solutions. Also we illustrate some numerical examples.

Association of a Negative Wealth Shock With All-Cause Mortality in Middle-aged and Older Adults in the United States

A sudden loss of wealth-a negative wealth shock-may lead to a significant mental health toll and also leave fewer monetary resources for health-related expenses. With limited years remaining to regain lost wealth in older age, the health consequences of these negative wealth shocks may be long-lasting. To determine whether a negative wealth shock was associated with all-cause mortality during 20 years of follow-up. The Health and Retirement Study, a nationally representative prospective cohort study of US adults aged 51 through 61 years at study entry. The study population included 8714 adults, first assessed for a negative wealth shock in 1994 and followed biennially through 2014 (the most recent year of available data). Experiencing a negative wealth shock, defined as a loss of 75% or more of total net worth over a 2-year period, or asset poverty, defined as 0 or negative total net worth at study entry. Mortality data were collected from the National Death Index and postmortem interviews with family members. Marginal structural survival methods were used to account for the potential bias due to changes in health status that may both trigger negative wealth shocks and act as the mechanism through which negative wealth shocks lead to increased mortality. There were 8714 participants in the study sample (mean [SD] age at study entry, 55 [3.2] years; 53% women), 2430 experienced a negative wealth shock during follow-up, 749 had asset poverty at baseline, and 5535 had continuously positive wealth without shock. A total of 2823 deaths occurred during 80 683 person-years of follow-up. There were 30.6 vs 64.9 deaths per 1000 person-years for those with continuously positive wealth vs negative wealth shock (adjusted hazard ratio [HR], 1.50; 95% CI, 1.36-1.67). There were 73.4 deaths per 1000 person-years for those with asset poverty at baseline (adjusted HR, 1.67; 95% CI, 1.44-1.94; compared with continuously positive wealth). Among US adults aged 51 years and older, loss of wealth over 2 years was associated with an increased risk of all-cause mortality. Further research is needed to better understand the possible mechanisms for this association and determine whether there is potential value for targeted interventions.

Household's Balance Sheets and the Effect of Fiscal Policy

Using the Panel Survey of Income Dynamics, we identify six household types as a function of their balance sheet composition. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a DSGE model with search and matching frictions, we explore how changes in the distribution of households affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the magnitude of the fiscal multipliers, and the distributional consequences of fiscal shocks. While the output and consumption multipliers are positively correlated with the share of households with negative wealth, the size of the employment multiplier is negatively correlated. For calibrations based on the empirical household weights after the Great Recession, our model delivers jobless fiscal expansions.

The Brexit effect: the case of UK ADR performance one year later

ABSTRACTIn an unexpected outcome, UK voters decided that it was time to exit the European Union based on the results of a vote held on 23 June 2016. Studies of the affects and implication of Brexit include a study showing that the vote was met with a negative short-term wealth effect for UK American depository receipts (ADRs). This study examines the one-year anniversary holding period returns of these ADRs along with the British Pound and the FTSE 100 to discover any lingering effects from the historical vote. Results indicate that the one-year holding period returns for the ADRs averaged 5.8% for the year while the FTSE gained 4.8%, the S&P 500 gained 15.4% and the Pound lost 13.2% of its value.

Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society

The social safety net for older Americans has been shrinking for the past couple decades. The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net. As a result of these increased financial burdens, the median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390 as compared to more than $250,000 for their non-bankrupt peers. For an increasing number of older Americans, their golden years are fraught with economic risks, the result of which is often bankruptcy.

Globalisation, money, taxes – past and present

The article is devoted to changes that have taken place in the world economy and in the econo- mics, starting with the Great Depression of the 1930s to the contemporary Global Crisis. The author pays special attention to the phenomenon of free movement of capital across borders, which lead to weakening of the importance and role of the state.

An optimal consumption and investment problem with quadratic utility and negative wealth constraints

In this paper, we investigate the optimal consumption and portfolio selection problem with negative wealth constraints for an economic agent who has a quadratic utility function of consumption and receives a constant labor income. Due to the property of the quadratic utility function, we separate our problem into two cases and derive the closed-form solutions for each case. We also illustrate some numerical implications of the optimal consumption and portfolio.

An optimal consumption, leisure, and investment problem with an option to retire and negative wealth constraints

This paper attempts to choose the optimal consumption, leisure, investment, and voluntary retirement time under the negative wealth constraint. The Dynamic Programming method is used to derive the value function and to identify the optimal policies when the agent’s utility function of consumption and leisure is given in the form of Cobb–Douglas. Finally, the effects of negative wealth constraints were discussed by examining the optimal policies that vary depending on the degree of the negative wealth constraint.

The impact of student debt on education, career, and marriage choices of female lawyers

We develop and estimate a dynamic model to study the impact of student debt on education, career, and marriage market choices of young female lawyers. Our model accounts for several important institutional features of the labor market for lawyers, including differences in the work hours across occupational tracks and learning about the prospects of promotion to partner. Some female students need to take on large amounts of student debt to finance their education and hence start their careers with large amounts of negative wealth. The empirical findings suggest that student debt has negative effects on marriage prospects, career prospects, and investments in educational quality of female lawyers. The analysis also provides new insights into the design of public policies that aim to increase public sector employment. We show that it is possible to design conditional wage or debt service subsidy programs that significantly increase public sector career choices at reasonable costs.

The value of credit rating changes across economic cycles

This paper examines how credit rating changes of US based firms affect equity markets in differing economic conditions and across different bond types. This study examines cross-sectional reactions upon a rating change, controlling for potential variance changes on the event day. Consistent with earlier works, we document a negative wealth effect for downgrades and no reaction for upgrades. Interestingly, however, we find there is a significant difference in stock price reaction to downgrades during periods of contraction versus periods of expansion. Reactions to downgrades are driven by smaller firms. Speculative firms are also more likely to hold higher risk of default and these firms see significant stock price reactions following a credit rating change due to both higher information asymmetry and default likelihood.