{"title":"Opacity, Credit Rating Shopping and Bias","authors":"F. Sangiorgi, Chester Spatt","doi":"10.2139/ssrn.2021073","DOIUrl":"https://doi.org/10.2139/ssrn.2021073","url":null,"abstract":"We develop a rational expectations model in which an issuer purchases credit ratings sequentially, deciding which to disclose to investors. Opacity about contacts between the issuer and rating agencies induces potential asymmetric information about which ratings the issuer obtained. While the equilibrium forces disclosure of ratings when the market knows these have been generated, endogenous uncertainty about whether there are undisclosed ratings can arise and lead to selective disclosure and rating bias. Although investors account for this bias in pricing, selective disclosure makes ratings noisier signals of project value, leading to inefficient investment decisions. Our paper suggests that regulatory disclosure requirements are welfare enhancing. This paper was accepted by Gustavo Manso, finance.","PeriodicalId":187122,"journal":{"name":"Swedish House of Finance Research Paper Series","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126420568","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"East or West, Home Is Best: The Birthplace Bias of Individual Investors","authors":"T. Lindblom, Taylan Mavruk, Stefan Sjögren","doi":"10.2139/ssrn.2129290","DOIUrl":"https://doi.org/10.2139/ssrn.2129290","url":null,"abstract":"We examine whether there is birthplace bias in addition to local bias in the portfolio choice of individual investors. We find that, on average, individual investors who live in their birthplace invest almost three times more of their portfolio capital in local firms than other locals. A bias toward birthplace firms persists for a long time after moving elsewhere and increases significantly for “homecomers.” Our detailed analysis suggests that individual investors’ proximity bias is largely an urban phenomenon, which is explained neither by the information hypothesis nor by the familiarity hypothesis. We find that more sophisticated investors, in terms of portfolio diversification, earn, on average, abnormal portfolio returns, but they do this regardless of their portfolio distortion. Thus, attention ought to be directed toward whether individual investors are financially sophisticated rather than whether they are proximity biased.","PeriodicalId":187122,"journal":{"name":"Swedish House of Finance Research Paper Series","volume":"06 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128714881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Uncertainty, Information Acquisition and Price Swings in Asset Markets","authors":"A. Melé, F. Sangiorgi","doi":"10.2139/ssrn.1398870","DOIUrl":"https://doi.org/10.2139/ssrn.1398870","url":null,"abstract":"This paper analyzes costly information acquisition in asset markets with Knightian uncertainty about the asset fundamentals. In these markets, acquiring information not only reduces the expected variability of the fundamentals for a given distribution (i.e., risk). It also mitigates the uncertainty about the true distribution of the fundamentals. Agents who lack knowledge of this distribution cannot correctly interpret the information other investors impound into the price. We show that, due to uncertainty aversion, the incentives to reduce uncertainty by acquiring information increase as more investors acquire information. When uncertainty is high enough, information acquisition decisions become strategic complements and lead to multiple equilibria. Swift changes in information demand can drive large price swings even after small changes in Knightian uncertainty.","PeriodicalId":187122,"journal":{"name":"Swedish House of Finance Research Paper Series","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127857669","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Judging the Quality of Survey Data by Comparison with 'Truth' as Measured by Administrative Records: Evidence from Sweden","authors":"R. Koijen, Stijn Van Nieuwerburgh, Roine Vestman","doi":"10.2139/ssrn.2006423","DOIUrl":"https://doi.org/10.2139/ssrn.2006423","url":null,"abstract":"We construct a new consumption measure as a residual from the budget constraint. Consumption is that part of income that is not used to increase assets. Our measurement relies on detailed Swedish registry data on the various sources of income and the composition of households' asset portfolio, collected as part of the tax assessment process. The richness of the data allow us to impute a household-specific portfolio return, which is important to arrive at an accurate consumption measure with our method. We match the Swedish households that are surveyed with a standard European Household Budget Survey to our data set, allowing a detailed comparison of the two consumption measures. We find that the survey-based measures understate consumption for home-owners, high-income, and high-wealth households. Survey-based consumption appears unbiased for the average renter and, if anything, slightly understates consumption for the youngest and poorest in our sample. Taken together, the survey understates consumption inequality. Separately, Swedish car registry data on car transactions indicate severe reporting biases in the survey.","PeriodicalId":187122,"journal":{"name":"Swedish House of Finance Research Paper Series","volume":"2013 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132050494","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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