Real economy portfolio: The market risk premium as a source of alpha
Artificial Intelligence, Firm Growth and Industry Concentration
December 2, 2020
Please join Tania Babina, Assistant Professor of Finance at Columbia University, and Russ Wermers, Dean’s Chair in Finance, Robert H. Smith School of Business & Director, Center for Financial Policy as they discuss the positive effects of artificial intelligence (AI) on firms.
Which firms invest in artificial intelligence (AI) technologies, and how do these investments affect individual firms and industries? Firms that invest in AI experience faster growth in both sales and employment, which translates into analogous growth at the industry level. The positive effects are concentrated among the ex-ante largest firms, leading to a positive correlation between AI investments and an increase in industry concentration.
Babina’s findings support the view that new technologies, such as AI, increase the scale of the most productive firms and contribute to the rise of superstar firms
Social Transmission Bias in Economics and Finance
David Hirshleifer, Distinguished Professor of Finance, Merage Chair in Business Growth, UC Irvine
October 1, 2020
Russ Wermers and David Hirshleifer discuss social transmission bias in economics and finance and how it affects social processes shaping economic thinking and behavior. Hirshleifer uses “fables” (models) to illustrate the novelty and scope of the transmission bias approach, and offers several emergent themes which can help explain booms, bubbles, return anomalies, and swings in economic sentiment.
Decomposing the Value of Corporate Culture
Jillian Grennan, Fuqua School of Business, Duke University
August 18, 2020
Extracting signals of environmental, social, and governance (ESG) metrics relies on quantifying qualitative concepts, yet divergent approaches have resulted in inconsistent and confusing constructs.
Using alternative data sources, Jillian Grennan shows how to measure corporate culture in a manner consistent with the distinct dimensions emphasized by psychologists: (1) the content of cultural values or what is deemed important (e.g., collaboration, innovation), (2) the consensus or how widely shared the values are across employees, (3) the intensity of feelings about the importance of the values (e.g., are employees willing to sanction others), and (4) the focus or how concentrated attention is over different values.
She then demonstrates how the measures of corporate culture improve upon traditional valuation approaches. Read the research.
Financial Markets and News About the Coronavirus
July 22, 2020
Harry Mamaysky, professor of professional practice at Columbia Business School, Russ Wermers, and Paul Winter, discuss financial markets and news about the coronavirus. They examine how financial markets interact with news about the COVID-19 pandemic.
A twelve-topic model optimizes the trade-off between the number of topics and topic coherence. Using this model, Mamaysky shows that before mid-March 2020 markets reacted more to the same quantum of news when volatility is higher — a phenomenon he calls hypersensitivity. Formal tests identify a structural break in mid-March, post which markets are no longer hypersensitive. In the hypersensitive stage, markets are overly volatile and overreact to news. Despite hypersensitivity, lagged prices better forecast future COVID-19 case counts than does lagged news.
June 16, 2020
Robert Shiller, Sterling Professor of Economics at Yale University and winner of the 2013 Nobel Memorial Prize in economic sciences, and Russ Wermers, dean’s chair in finance & director of the Center for Financial Policy at Maryland Smith, discuss the power of viral stories and how they can affect economies.
The stories people tell — about economic confidence or panic, the American dream, or Bitcoin — affect economic outcomes. Our event explores how "narrative economics" can influence the ability to predict, prepare for, and lessen the damage of major economic events.
The Great Value Debate Part I
June 22, 2020
This session explores the performance of value over the past decade and poses the question 'can we make value great again?' Or should we focus our attention on new differentiated sources of alpha.
Presented by Gerald Garvey, head of Asia-Pacific Research and co-head of global research at Blackrock Systematic Active Equity & Russ Wermers, dean’s chair in finance & director of the Center for Financial Policy at Maryland Smith.
The Great Value Debate Part II
July 2, 2020
Session two examines the other side of the debate: is value dead? Are we measuring value correctly? And are we set for a historic value rally relative to growth over the coming decade?
Presented by Campbell R. Harvey, distinguished professor of finance at the Fuqua School of Business, Duke University, and a research associate of the National Bureau of Economic Research in Cambridge, Massachusetts. LinkedIn | Research paper