Value Of Private Information Research Articles

Risk Scores for Long-Term Unemployment and the Assignment to Job Search Counseling

This paper analyses how risk profiling is used to assign unemployed job seekers to job search counseling in Flanders, Belgium. We compare algorithmic selection to self-selection and selection by job search counselors. We discuss practical challenges for the implementation of risk profiling and highlight avenues for further research. We find that algorithmic assignment is used for only a small fraction of the sample and that job search counselors appear to have valuable private information on job seekers' reemployment prospects beyond what is captured by the algorithmic risk score.

Strategic Informed Trading and the Value of Private Information

Strategic Informed Trading and the Value of Private Information

Private and Mobile inter-network routing for Wireless Sensor Networks and Internet of Things

In the last few years, using the Internet of Things has been expanded in many areas, such as environmental monitoring, industries, and smart home. Since the Internet of Things has a direct relation to human life, its security is of paramount importance. Therefore, the communication between the nodes should be secured and the valuable private information should be kept private so that the attacker cannot detect the network structure. This article provides a protocol that can handle routing privately. To do this, we use the data structure called Spatial Bloom Filter (SBF). In addition, the proposed protocol uses random identifiers instead of IP addresses, so that an attacker cannot collect network structure information and location of nodes from IP addresses. Using a homomorphic encryption scheme, the protocol prevent attackers from retrieving valuable network information, if they can infiltrate to one or more network nodes. Also, since almost all nodes in the internet of things are mobile, the structure of networks and subnets is constantly changing. The proposed protocol has the ability to manage to route in networks with a dynamic structure.

Determinants of common ownership: Exploring an information-based and a competition-based perspective in a global context

This study explores the determinants of common ownership. Drawing on two explanatory lenses, we suggest an information-based perspective and a competition-based perspective. We theorize on and empirically test both perspectives at the firm, industry, and country levels. Based on 14,372 observations of firms from the MSCI All Country World Index for the years 2008 to 2017, we find evidence supporting the information-based perspective at the firm, industry, and country levels: Access to and the value of private information about rival firms increases common ownership. For the competition-based perspective, we find support at the industry and country levels, specifically uncovering that common ownership is higher in more concentrated industries and in countries with more extensive laws regarding anticompetitive conduct. Our findings contribute to research by stressing the relevance of both perspectives. Overall, our study has broader implications for understanding the emerging phenomenon of common ownership.

Uncertainty in Mechanism Design

This paper studies the design of mechanisms that are robust to misspecification. We introduce a novel notion of robustness that connects a variety of disparate approaches and study its implications in a wide class of mechanism design problems. This notion is quantifiable, allowing us to formalize and answer comparative statics questions relating the nature and degree of misspecification to sharp predictions regarding features of feasible mechanisms. This notion also has a behavioral foundation which reflects the perception of ambiguity, thus allowing the degree of misspecification to emerge endogenously. In a number of standard settings, robustness to arbitrarily small amounts of misspecification generates a discontinuity in the set of feasible mechanisms and uniquely selects simple, ex post incentive compatible mechanisms such as second-price auctions. Robustness also sheds light on the value of private information and the prevalence of full or virtual surplus extraction.

Tipping in Korea

Prior research documents that analyst revisions are important information events and that some investors trade ahead of them. However, prior studies have been unable to show which investors trade ahead of analyst revisions, the aggregate benefits to trading ahead, and the costs borne by various investors from trading against investors that anticipate revisions. To address these questions, we exploit high-frequency trading information from the Korea Exchange (KRX) that characterizes all purchase and sale transactions of twenty different investor groups. We first validate that analyst revisions contain valuable private information: upgrades increase prices by 2.5% and downgrades decrease prices by 2.9%. We next document that asset managers who are geographically and socially close to analysts anticipate recommendations up to two days before they are released, while other institutions do not. Lastly, we show that this ability to anticipate analyst revisions enables these investors to trade profitably against domestic retail investors and foreign professional investors. Local hedge funds earn $2.5 million more than normal when trading against foreign professionals ahead of analyst revisions, which is more than all other investor groups combined. Notably, local asset managers typically lose money when trading against foreign professionals, who seem to earn profits by engaging in high-frequency market making. In sum, asset managers in Korea appear to receive tips from brokerages about upcoming revisions, which shifts the competitive balance between domestic institutions and skilled foreign market makers, and aggregate profits around revisions depend on investor sophistication, geographic proximity, and cultural affinity.

Is there valuable private information in credit ratings?

Credit rating agencies (CRAs) contend their ratings contain a quantitative assessment based on hard information, and a qualitative adjustment based on private information. We study if the qualitative portion of ratings, generated with the companies’ own private information, contains valuable information for equity investors. We generate predicted ratings based on hard information alone and form portfolios of stocks based on the difference between observed and predicted ratings. Over a sample from 1998 to 2018, we find that stock portfolios formed on the basis of private information generate 2% to 4% in annual risk-adjusted returns. We also find that companies with positive private information have better future accounting performance. Our results suggest that CRAs bring valuable information to the market and investors could benefit from it.

Is There Valuable Private Information in Credit Ratings?

Credit rating agencies (CRAs) contend their ratings contain a quantitative assessment based on hard information, and a qualitative adjustment based on private information. We study if the qualitative portion of ratings, generated with the companies' own private information, contain valuable information for equity investors. We generate predicted ratings based on hard information alone and form portfolios of stocks based on the difference between observed and predicted rating. Over a sample from 1998 to 2018, we find that stock portfolios formed on the basis of private information generate 2% to 4% in annual risk-adjusted returns. We also find that companies with positive private information have better future accounting performance. Our results suggest that CRAs bring to market valuable information and investors could benefit from it.

Institutional investors and information acquisition: Implications for asset prices and informational efficiency

We study the joint portfolio and information choice problem of institutional investors who are concerned about their performance relative to a benchmark. Benchmarking influences information choices through two distinct economic mechanisms. First, benchmarking reduces the number of shares in investors' portfolios that are sensitive to private information. Second, benchmarking limits investors' willingness to speculate. Both effects imply a decline in the value of private information. Hence, in equilibrium, investors acquire less information and informational efficiency declines. As a result, return volatility increases and benchmarking can cause a decline in equilibrium stock prices. Moreover, less-benchmarked institutional investors outperform more-benchmarked ones.

A Study on Realistic Energy Storage Systems for the Privacy of Smart Meter Readings of Residential Users

The introduction of smart meters sparked concerns about privacy breach through real-time monitoring of electric power consumption. Valuable private information about occupancy, behaviour, health, religion and wealth can be extracted from the user’s power profile which urges measurements to protect the integrity of the user. One physical mitigation technique to assure privacy is explored using energy storage systems. Real energy storage technologies are limited in their energy capacities and power capabilities, which have to be appropriately sized to fulfil their role. This paper analyses and compares different energy storage technologies (li-ion, lead-acid, electric double layer capacitor and flywheel) for the protection of residential users by estimating the minimal required capacities and costs for both single and multiple user cases. The analysis is based on actual measured user data from the REDD data set. The results show that the integrity can be protected with reasonable capacities and investments ranging in the margin of market available products.

Evidence That Analyst Forecasts Do Not Reflect Their Expectations

The results of this article imply that analysts have become better informed about companies’ earnings prospects and have therefore become more accurate in forecasts made well in advance of the reporting period end. However, towards the reporting period end, when investors position themselves to profit from earnings surprise, analysts’ earnings forecasts now deliberately reflect less of their true expectations and have become less accurate. A possible explanation for this development is that as analysts have better and more valuable private information, they have increased incentives to provide select clients with exclusive use of their private information. The implications are that i) an unintended effect of Reg FD may be that less information is now disseminated in financial markets, ii) the decline in hedge fund performance in recent years may be due to the greater uncertainty in determining market expectations, and iii) earnings surprise strategies might be successful again if one could better measure market expectations prior to the earnings announcement.

The Complementarities of Accounting Information and Its Off-equilibrium Role

This paper studies the role of financial reporting in enhancing the credibility of other sources of information. We find that an interim accounting report can discipline management's investment behavior and its effectiveness increases with accounting quality. As a consequence, when accounting quality increases, the investment itself becomes a sufficiently credible signal of management's more valuable private information, and therefore induces a dramatic market response. In this sense, the two pieces of information serve as compliments. However, since most information has already been preempted by the investment, the market's response to subsequent earnings announcement declines. Our results are consistent with the confirmatory role by Gigler and Hemmer (1998) in that the value of accounting is off equilibrium. Specifically, it is the threat that accounting will reveal an inefficient investment that prevents it from happening. Nevertheless, the mechanism in our paper is completely different, and the economic magnitude of the off-equilibrium role is first order, rather than a result of improved risk sharing. Therefore, to assess the value of accounting, we cannot simply rely on the equilibrium market responsiveness to earnings.

Credit ratings, private information, and bank monitoring ability

In this paper, we use credit rating data from two large Swedish banks to elicit evidence on banks’ loan monitoring ability. For these banks, our tests reveal that banks’ internal credit ratings indeed include valuable private information from monitoring, as theory suggests. Banks’ private information increases with the size of loans. However, our tests also reveal that publicly available information from a credit bureau is not efficiently impounded in the bank ratings: credit bureau ratings predict future movements in bank ratings and improve forecasts of both bankruptcy and loan default. The inefficiency of bank ratings is greater for smaller loans. We investigate possible explanations for these findings. Our results are consistent with bank loan officers placing too much weight on their private information, a form of overconfidence. Risk analyses of the loan portfolios in our data could thus be improved by combining the bank credit ratings with public credit bureau ratings. The methods we use represent a new basket of straightforward techniques that enable both financial institutions and regulators to assess the performance of credit rating systems.

Discretion in Hiring*

Job-testing technologies enable firms to rely less on human judgment when making hiring decisions. Placing more weight on test scores may improve hiring decisions by reducing the influence of human bias or mistakes but may also lead firms to forgo the potentially valuable private information of their managers. We study the introduction of job testing across 15 firms employing low-skilled service sector workers. When faced with similar applicant pools, we find that managers who appear to hire against test recommendations end up with worse average hires. This suggests that managers often overrule test recommendations because they are biased or mistaken, not only because they have superior private information.

비용편익분석 프레임워크를 통한 개인정보가치에 대한 연구 : 개인적 특성, 거래 상대방 특성, 상황적 특성을 중심으로

본 연구는 사용자가 개인정보를 경제적 관점으로 인지할 때, 개인적 특성, 거래 상대방의 특성, 상황적 특성에 따라 변화되는 개인정보가치를 비용편익분석 프레임워크를 바탕으로 살펴보았다. 이를 위하여 본 연구는 첫째, 개인이 인지하는 개인정보가치의 영향 요인 탐색, 둘째, 개인적, 거래 상대방, 상황적 특성에 따른 인터넷 사용자들의 개인정보가치 인식의 차이 확인, 셋째, 도출된 선행요인들을 바탕으로 개인의 지각된 위험에 미치는 영향력 검증, 넷째, 개인의 지각된 위험과 개인정보가치 사이의 상관관계를 분석하였다. 또한 개인적 특성인 위험회피 성향과 거래 상대방의 정보보안체계 확립 및 개인정보 유출 경험 여부, 상황에 대한 불확실성과 통제성의 요인에 따라 달라지는 개인의 지각된 위험을 파악하고 추가적으로 이에 따른 개인정보가치의 변화를 살펴보았다. 연구 분석 결과, 개인정보 유출 경험과 정보보안체계 확립 여부 및 상황의 통제성과 불확실성은 개인의 지각된 위험에 유의미한 영향을 미쳤으며, 지각된 위험의 증가는 개인정보가치 상승에 영향을 주는 것으로 나타났다. 따라서 본 연구의 결과는 개인의 지각된 위험과 그 특성 요인들, 그리고 개인정보가치의 관계를 바탕으로 개인정보가치 산정에 새로운 관점을 제시함과 동시에 향후, 개인정보가치 산정 모델의 토대를 제공하였다는 점에서 의의를 갖는다.

What Motivates Buy-Side Analysts to Share Recommendations Online?

We examine why buy-side analysts share investment ideas on SumZero.com, a private social networking website designed to facilitate interaction and information sharing among buy-side professionals. We explore labor market motivations for information sharing and document that analysts with strong incentives to build a reputation (i.e., those who did not attend a top 10 university and those employed at small funds) are significantly more likely to share recommendations. Our findings indicate that analysts who share ideas are more likely to change jobs and that the likelihood of employment change is positively related to the ratings provided by peers. We also document that analyst recommendations generate significant returns when they are posted on SumZero and that prices drift in the direction of the recommendation. Long-window returns are particularly strong for contrarian buy recommendations and for most sell recommendations. Overall, we show that buy-side analysts share valuable private information in an online social network and that this can be an effective reputation-building and job-seeking tool. This paper was accepted by Mary Barth, accounting.

Optimal Disclosure and Fight for Attention

This paper presents a model in which a manager voluntarily discloses precision information in addition to fundamental information about firm profitability. The firm's stock price guides its real investment decision and the informational content of the price is affected by the voluntary disclosure decision, because informed trading is endogenous. We highlight a novel trade-off: on the one hand, more precise public information crowds-out traders' private information acquisition because it levels the playing-field. On the other hand, there can also be a novel crowding-in effect because high-precision disclosures indicate greater managerial confidence and thus higher investment, which increases the traders' value of private information. For positive fundamental information the net effect is ambiguous, for negative information the crowding-out effect dominates.

Wallace E. Oates Outstanding Doctoral Dissertation Award

Previous articleNext article FreeWallace E. Oates Outstanding Doctoral Dissertation AwardPDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinked InRedditEmailQR Code SectionsMoreEach spring, AERE invites outstanding doctoral dissertation nominations from dissertation chairs for their students completing the doctoral degree in the previous calendar year. Dissertations are judged by a panel of AERE members who emphasize originality of research, quality of implementation, and expositional clarity, along with intellectual and practical significance of research findings. The winner receives a cash prize plus assistance in travel funding to attend the next AERE luncheon at the January ASSA meetings for public recognition. Finally, the winner’s dissertation abstract appears in JAERE.We are pleased to announce that Casey J. Wichman is the recipient of the 2015 Wallace E. Oates Outstanding Doctoral Dissertation Award. Wichman graduated in 2015 from the University of Maryland with a PhD in Agricultural and Resource Economics. His dissertation committee was cochaired by Roberton Williams and Maureen Cropper.Information and Environmental PolicyCasey J. WichmanAbstract: The role of information in economic policy has evolved drastically in the 50 years since Stigler’s seminal article on “the economics of information” (Stigler 1961). And yet, in the context of consumer behavior, many interesting questions remain unanswered on the value of information, how it is used in decision making, and precisely how it is ignored. Questions of particular interest encompass the degree to which consumers utilize price information in decision making, whether individuals confronted with changes in the frequency of information received behave as economic models predict, and the value of private information in a regulatory context. While these questions are inherently general, the focus of this research is to address the role of information with applications to environmental and resource economics.Within this manuscript, I present three distinct essays linked by the commonality of how information is utilized in decision making and its effect on environmental policy.In the first essay (Wichman 2014), I evaluate the price to which consumers respond under complicated billing structures. I exploit a natural experiment to estimate a causal effect of price for residential water customers during the introduction of increasing block rates for a North Carolina utility. Perceived price is identified through a billing anomaly in which changes in marginal and average prices move in opposite directions. Empirical results contribute evidence that residential water customers respond to average price. Average price elasticity estimates vary from −0.43 to −1.14 across the distribution of consumption in triple-difference models, with an estimate of −0.31 in the tightest bandwidth of regression discontinuity specifications.In the second essay (Wichman 2015), I examine a causal effect of billing frequency on consumer behavior. I exploit a natural experiment in which residential water customers transitioned exogenously from bimonthly to monthly billing. I find that customers increase consumption by approximately 5% in response to more frequent information. This result is reconciled in a model of price and quantity uncertainty, where increases in billing frequency reduce the distortion in consumers’ perceptions. Using treatment effects as sufficient statistics, I calculate gains in consumer surplus equivalent to 0.5%–1% of annual water expenditures. Heterogeneous treatment effects suggest increases in outdoor water use.And, in the final essay (Wichman 2016), I consider the role of heterogeneous green preferences for private provision of environmental public goods in an asymmetric information context. Under varying degrees of information available to a regulator, I characterize equilibrium properties of several mechanisms. I find incentive compatible Nash equilibria that provide socially optimal public goods provision when the regulator can enforce individual consumption contracts, as well as when reported consumption contracts are supplemented with group penalties. The role of budget balancing is recast as a policy intervention for correcting environmental market failures. Notes Casey J. Wichman is at Resources for the Future, 1616 P Street NW, Washington, DC 20036 ([email protected]).ReferencesStigler, George J. 1961. The economics of information. Journal of Political Economy 69 (3): 213–35.First citation in articleLinkGoogle ScholarWichman, Casey J. 2014. Perceived price in residential water demand: Evidence from a natural experiment. Journal of Economic Behavior and Organization 107:308–23.First citation in articleCrossrefGoogle Scholar———. 2015. Information provision and consumer behavior: A natural experiment in billing frequency. Discussion paper 15-35, Resources for the Future, Washington, DC.First citation in articleGoogle Scholar———. 2016. Incentives, green preferences, and private provision of impure public goods. Journal of Environmental Economics and Management 79:208–20.First citation in articleCrossrefGoogle Scholar Previous articleNext article DetailsFiguresReferencesCited by Journal of the Association of Environmental and Resource Economists Volume 4, Number 1March 2017 Published for the Association of Environmental and Resource Economists Article DOIhttps://doi.org/10.1086/690613 © 2017 by The Association of Environmental and Resource Economists. All rights reserved.PDF download Crossref reports no articles citing this article.

CLO Trading and Collateral Manager Bank Affiliation

This paper investigates whether the type of institutional affiliation of a collateralized loan obligation (CLO) manager influences the manager’s access to information and risk appetite. We base our investigation on CLO managers’ trading of distressed loans. Our findings reveal that CLO managers affiliated with banks start to sell off their positions in loans arranged by their bank well before the onset of default and continue to do so even after default. In contrast, CLO managers affiliated with nonbanks do not lower their credit exposures to distressed loans. These findings are consistent with bank-affiliated CLO managers having access to private information but also being more concerned to mitigate the reputational risk exposure of their banking organization. On close inspection, we find that reputational concerns are a significant factor in the decision to divest defaulted loans. Although the value of private information after default is moot, we find that bank-affiliated CLO managers are significantly more averse to holding their own arranged problem loans than holding distressed loans arranged by unaffiliated banks. Besides helping us understand CLO managers’ trading activities, our findings also highlight a potential limit to banks’ ability to originate loans and distribute them via their affiliated CLOs.

Information Choice and Amplification of Financial Crises

We propose an amplification mechanism of financial crises based on the information choices of investors. Information acquisition makes investors more likely to act against their prior. Deteriorating public news under an initially strong (weak) prior increases (reduces) the value of private information and induces more (less) information acquisition. Deteriorating public news increases the probability of a crisis, since the initially strong (weak) prior induces no attacks (attacks). This effect is amplified with endogenous information choices. To enhance financial stability, a policy maker affects information acquisition via taxes and subsidies. We derive and discuss testable implications for the magnitude of amplification.