SSRN Author: James Ming ChenJames Ming Chen SSRN Content
http://www.ssrn.com/author=68651
http://www.ssrn.com/rss/en-usSun, 20 Dec 2015 01:09:35 GMTeditor@ssrn.com (Editor)Sun, 20 Dec 2015 01:09:35 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0New: Fables of the Reconstruction: Human Emotion and Behavioral Heuristics in Environmental EconomicsEnvironmental economics provides an especially rich source of insights into the impact of emotion, cognitive bias, and behavioral heuristics on risk assessment and management. In contrast with the ambivalent reception of behavioral psychology within mathematical finance, the impact of emotion and innate heuristics on environmental decision making has never been doubted. From the affect heuristic to the endowment effect and disaster psychology, environmental choices harbor the richest trove of economic departures from strict rationality.
http://www.ssrn.com/abstract=2705196
http://www.ssrn.com/1454212.htmlSat, 19 Dec 2015 13:25:20 GMTNew: Momentary Lapses of Reason: The Psychophysics of Law and BehaviorThe conventional capital asset pricing model (CAPM) remains the preferred approach to risk management in a wide range of economic settings. At the same time, the neoclassical assumptions underlying the CAPM have come under severe attack by behavioral economics. In sharp contrast with the purely rational agents of neoclassical economics, real humans make decisions under the constraints imposed by their innate heuristics. The tension between conventional asset pricing theory and behavioral economics puts particular pressure on law. As an applied branch of social science, law purports to subject human conduct to rules that should optimize objective well-being as well as subjective satisfaction.
This paper proposes a mathematically expedient method of alleviating this tension. A four-moment capital asset pricing model captures the emotional impact of odd and even moments of statistical distributions. Critically, a four-moment CAPM transcends the limits of financial models that ...
http://www.ssrn.com/abstract=2683557
http://www.ssrn.com/1440696.htmlFri, 30 Oct 2015 16:57:33 GMTREVISION: Indexing Inflation: The Impact of Methodology on Econometrics and Macroeconomic PolicyBecause there is no perfect gauge of inflation, the macroeconomic enterprise of indexing inflation ultimately dissolves into a choice among imperfect methodologies. But that choice still matters. This article will highlight the practical significance of methodological choices made in the course of indexing inflation. It will focus on two different indexes of inflation in the United States: the Consumer Price Index (CPI) and the implicit price deflator of the gross domestic product (IPD). This article identifies a long-term gap in these competing indexes’ measurement of inflation. To explain why the CPI appears to overstate inflation, relative to the IPD, by roughly two-thirds of a percentage point each year, this article more fully describes the distinct methodologies underlying the CPI and the IPD. Lawmakers should adopt the implicit price deflator of the GDP, or some other inflation index that shares its best methodological features, as the best practicable measure of real ...
http://www.ssrn.com/abstract=2474949
http://www.ssrn.com/1434766.htmlThu, 08 Oct 2015 09:06:53 GMTREVISION: Leaps, Metes, and Bounds: Innovation Law and Its LogisticsEconomic analysis of technological innovation, diffusion, and decline often proceeds according to sigmoid (S-shaped) models, either directly or as a component in more elaborate mathematical representations of the creative process. Three distinct aspects of American innovation policy — Aereo’s failed attempt to retransmit television broadcasts, agricultural biotechnology, and network neutrality — invite analysis according to one variant or another of the logistic function. Innovation and legal policies designed to foster it follow the leaps, metes, and bounds of sigmoid functions.
Part I introduces the logistic function as the simplest analytical expression of a sigmoid function. Its parameters provide very clear interpretations grounded in physical principles. Part II evaluates the Aereo controversy and agricultural biotechnology as instances of logistic substitution between competing products. The deployment of plant-incorporated pesticides and herbicide-resistant crops ...
http://www.ssrn.com/abstract=2571830
http://www.ssrn.com/1434765.htmlThu, 08 Oct 2015 09:02:31 GMTNew: Law on the Market? Evaluating the Securities Market Impact of Supreme Court DecisionsDo judicial decisions affect the securities markets in discernible and perhaps predictable ways? In other words, is there “law on the market” (LOTM)? This is a question that has been raised by commentators, but answered by very few in a systematic and financially rigorous manner. Using intraday data and a multiday event window, this large scale event study seeks to determine the existence, frequency and magnitude of equity market impacts flowing from Supreme Court decisions.
We demonstrate that, while certainly not present in every case, "law on the market" events are fairly common. Across all cases decided by the Supreme Court of the United States between the 1999-2013 terms, we identify 79 cases where the share price of one or more publicly traded company moved in direct response to a Supreme Court decision. In the aggregate, over fifteen years, Supreme Court decisions were responsible for more than 140 billion dollars in absolute changes in wealth. Our analysis not only ...
http://www.ssrn.com/abstract=2649726
http://www.ssrn.com/1422684.htmlMon, 24 Aug 2015 17:30:04 GMTREVISION: Sinking, Fast and Slow: Bifurcating Beta in Financial and Behavioral SpaceModern portfolio theory accords symmetrical treatment to all deviations from expected return, positive or negative. This assumption is vulnerable on both descriptive and behavioral grounds. Many of the predictive flaws in contemporary finance stem from mathematically elegant but empirically flawed Gaussian models. In reality, returns are skewed. The presumption that returns and volatility are symmetrical also defies human behavior. Losing hurts worse than winning feels good; investors do not react equally to upside gain and downside loss. Moreover, correlation tightening during bear markets, not offset by changes in correlation during bull markets, suggest that standard diversification strategies may erode upside returns without providing adequate protection during times of stress.
This article outlines mathematical tools for calculating volatility, variance, covariance, correlation, and beta, not merely across the entire spectrum of returns, but also on either side of mean ...
http://www.ssrn.com/abstract=2629541
http://www.ssrn.com/1416726.htmlSun, 02 Aug 2015 04:50:54 GMTREVISION: Sinking, Fast and Slow: Bifurcating Beta in Financial and Behavioral SpaceModern portfolio theory accords symmetrical treatment to all deviations from expected return, positive or negative. This assumption is vulnerable on both descriptive and behavioral grounds. Many of the predictive flaws in contemporary finance stem from mathematically elegant but empirically flawed Gaussian models. In reality, returns are skewed. The presumption that returns and volatility are symmetrical also defies human behavior. Losing hurts worse than winning feels good; investors do not react equally to upside gain and downside loss. Moreover, correlation tightening during bear markets, not offset by changes in correlation during bull markets, suggest that standard diversification strategies may erode upside returns without providing adequate protection during times of stress.
This article outlines mathematical tools for calculating volatility, variance, covariance, correlation, and beta, not merely across the entire spectrum of returns, but also on either side of mean ...
http://www.ssrn.com/abstract=2629541
http://www.ssrn.com/1411490.htmlSun, 12 Jul 2015 14:18:43 GMTREVISION: The Promise and the Peril of Parametric Value-at-Risk (VaR) AnalysisLeptokurtosis, or the risk lurking in “fat tails,” poses the deepest epistemic threat to economic forecasting. Parametric value-at-risk (VaR) models are extremely vulnerable to kurtosis in excess of the levels associated with a normal, Gaussian distribution. This article provides step-by-step guidance on the use of Student’s t-distribution to enhance the statistical robustness of VaR forecasts. For degrees of freedom greater than 4, Student’s t-distribution can emulate any level of kurtosis exceeding that of a Gaussian distribution. Because VaR is elicitable from historical data, observed levels of excess kurtosis can inform the proper use of Student’s t-distribution to measure value-at-risk. In addition, the calculation of parametric VaR according to the number of degrees of freedom implied by historical levels of excess kurtosis leads directly to the corresponding value of expected shortfall. Conducted in this fashion, parametric VaR not only exploits the elicitability of that ...
http://www.ssrn.com/abstract=2615664
http://www.ssrn.com/1410513.htmlWed, 08 Jul 2015 17:07:27 GMTREVISION: The Promise and the Peril of Parametric Value-at-Risk (VaR) AnalysisLeptokurtosis, or the risk lurking in “fat tails,” poses the deepest epistemic threat to economic forecasting. Parametric value-at-risk (VaR) models are extremely vulnerable to kurtosis in excess of the levels associated with a normal, Gaussian distribution. This article provides step-by-step guidance on the use of Student’s t-distribution to enhance the statistical robustness of VaR forecasts. For degrees of freedom greater than 4, Student’s t-distribution can emulate any level of kurtosis exceeding that of a Gaussian distribution. Because VaR is elicitable from historical data, observed levels of excess kurtosis can inform the proper use of Student’s t-distribution to measure value-at-risk. In addition, the calculation of parametric VaR according to the number of degrees of freedom implied by historical levels of excess kurtosis leads directly to the corresponding value of expected shortfall. Conducted in this fashion, parametric VaR therefore exploits the elicitability of that ...
http://www.ssrn.com/abstract=2615664
http://www.ssrn.com/1406604.htmlTue, 23 Jun 2015 15:22:41 GMTREVISION: The Promise and the Peril of Parametric Value-at-Risk (VaR) AnalysisLeptokurtosis, or the risk lurking in “fat tails,” poses the deepest epistemic threat to economic forecasting. Parametric value-at-risk (VaR) models are extremely vulnerable to kurtosis in excess of the levels associated with a normal, Gaussian distribution. This article provides step-by-step guidance on the use of Student’s t-distribution to enhance the statistical robustness of VaR forecasts. For degrees of freedom greater than or equal to 5, Student’s t-distribution can emulate excess kurtosis of 6 or less, relative to the kurtosis of a Gaussian distribution. Because VaR (in stark contrast with alternative risk measures such as expected shortfall) is elicitable from historical data, observed levels of excess kurtosis can inform the proper use of Student’s t-distribution to forecast future value-at-risk.
http://www.ssrn.com/abstract=2615664
http://www.ssrn.com/1402817.htmlMon, 08 Jun 2015 17:19:14 GMTNew: Legal Signal ProcessingIt makes far more economic sense to prepare for disaster in advance than it does to stage heroic relief efforts after calamity strikes. For reasons rooted in politics and emotion, the law does exactly the opposite. Ad hoc relief, as expensive as it is spontaneous, dominates disaster law and policy.
The President’s unilateral power to declare a federal disaster under the Stafford Act invites political manipulation. To test whether presidential disaster declarations track the four-year presidential electoral cycle, this paper devises a generalized polynomial and multi-sinusoidal model for detecting cyclical patterns. This model draws heavily upon Fourier analysis and digital signal processing.
Presidential disaster declarations since 1953 reveal not one but two forms of periodicity. As expected, a “short wave” of four years shows how disaster declarations track the presidential election cycle. The effect is most pronounced not in election years (when declarations do spike), but in ...
http://www.ssrn.com/abstract=2614273
http://www.ssrn.com/1401926.htmlThu, 04 Jun 2015 19:30:08 GMTNew: Gini's CrossbowThe Gini coefficient remains a popular gauge of inequality throughout the social and natural sciences because it is visually striking and geometrically intuitive. It measures the “gap” between a hypothetically equal distribution of income or wealth and the actual distribution. But not all inequality curves yielding the same Gini coefficient are unequal in the same way. The Lorenz asymmetry coefficient, a second-order measure of asymmetry, provides further information about the distribution of income or wealth. To add even more interpretive power, this paper proposes a new angular measure derived from the Lorenz asymmetry coefficient. Adjusted azimuthal asymmetry is the angular distance of the Lorenz asymmetry coefficient from the axis of symmetry, divided by the maximum angular distance that can be attained for any given Gini coefficient.
http://www.ssrn.com/abstract=2608850
http://www.ssrn.com/1398525.htmlThu, 21 May 2015 17:18:08 GMTREVISION: Αρκτούρος: Protecting Biodiversity Against the Effects of Climate Change Through the Endangered Species ActClimate change is driving the anthropocene extinction, the sixth great extinction spasm of the Phanerozoic Eon. Large-scale habitat destruction puts many plant and animal species at risk of extinction. This essay describes the use of the Endangered Species Act to protect biodiversity from the effects of climate change.
http://www.ssrn.com/abstract=2436702
http://www.ssrn.com/1397570.htmlMon, 18 May 2015 06:13:34 GMTREVISION: Leaps, Metes, and Bounds: Innovation Law and Its LogisticsEconomic analysis of technological innovation, diffusion, and decline often proceeds according to sigmoid (S-shaped) models, either directly or as a component in more elaborate mathematical representations of the creative process. Three distinct aspects of American innovation policy — Aereo’s failed attempt to retransmit television broadcasts, agricultural biotechnology, and network neutrality — invite analysis according to one variant or another of the logistic function. Innovation and legal policies designed to foster it follow the leaps, metes, and bounds of sigmoid functions.
Part I introduces the logistic function as the simplest analytical expression of a sigmoid function. Its parameters provide very clear interpretations grounded in physical principles. Part II evaluates the Aereo controversy and agricultural biotechnology as instances of logistic substitution between competing products. The deployment of plant-incorporated pesticides and herbicide-resistant crops ...
http://www.ssrn.com/abstract=2571830
http://www.ssrn.com/1378782.htmlFri, 06 Mar 2015 05:30:31 GMTREVISION: Αρκτούρος: Protecting Biodiversity Against the Effects of Climate Change Through the Endangered Species ActClimate change is driving the anthropocene extinction, the sixth great extinction spasm of the Phanerozoic Eon. Large-scale habitat destruction puts many plant and animal species at risk of extinction. This essay describes the use of the Endangered Species Act to protect biodiversity from the effects of climate change.
http://www.ssrn.com/abstract=2436702
http://www.ssrn.com/1377682.htmlMon, 02 Mar 2015 13:20:38 GMTREVISION: Leaps, Metes, and Bounds: Innovation Law and Its LogisticsEconomic analysis of technological innovation, diffusion, and decline often proceeds according to sigmoid (S-shaped) models, either directly or as a component in more elaborate mathematical representations of the creative process. Three distinct aspects of American innovation policy — Aereo’s failed attempt to retransmit television broadcasts, agricultural biotechnology, and network neutrality — invite analysis according to one variant or another of the logistic function. Innovation and legal policies designed to foster it follow the leaps, metes, and bounds of sigmoid functions.
Part I introduces the logistic function as the simplest analytical expression of a sigmoid function. Its parameters provide very clear interpretations grounded in physical principles. Part II evaluates the Aereo controversy and agricultural biotechnology as instances of logistic substitution between competing products. The deployment of plant-incorporated pesticides and herbicide-resistant crops ...
http://www.ssrn.com/abstract=2571830
http://www.ssrn.com/1377501.htmlSun, 01 Mar 2015 17:04:03 GMTREVISION: Creamskimming and CompetitionThe concept of “creamskimming” arises with regularity in the law of regulated industries. As a rhetorical weapon, the term “creamskimming” readily conjures images of the sort of putatively destructive competition that regulatory commissions are charged with patrolling. As a result, allegations of creamskimming have become a standard weapon in the legal arsenal of incumbent firms seeking to resist competitive entry. At an extreme, incumbent firms will characterize all forms of competitive entry as creamskimming. Sound regulatory responses to these allegations therefore depend on a proper understanding of the creamskimming concept.
This article proposes a definition of creamskimming that will help state and federal regulatory agencies distinguish genuine objections to proposed competitive entry from reflexive (and often improper) efforts to shield incumbent firms from competition. “Creamskimming” should be defined as “the practice of targeting only the customers that are the ...
http://www.ssrn.com/abstract=1395554
http://www.ssrn.com/1375444.htmlSat, 21 Feb 2015 10:23:42 GMTREVISION: Αρκτούρος: Protecting Biodiversity Against the Effects of Climate Change Through the Endangered Species ActClimate change is driving the anthropocene extinction, the sixth great extinction spasm of the Phanerozoic Eon. Large-scale habitat destruction puts many plant and animal species at risk of extinction. This essay describes the use of the Endangered Species Act to protect biodiversity from the effects of climate change.
http://www.ssrn.com/abstract=2436702
http://www.ssrn.com/1375442.htmlSat, 21 Feb 2015 10:19:50 GMTREVISION: Modeling Citation and Download Data in Legal ScholarshipImpact factors among law reviews provide a measure of influence among these journals and the schools that publish them. Downloads from the Social Science Research Network (SSRN) serve a similar function. Bibliometrics is rapidly emerging as a preferred alternative to more subjective assessments of academic prestige and influence. Law should embrace this trend.
This paper evaluates the underlying mathematics of law review impact factors and per-author SSRN download rates by institution. Both of these measures follow the sort of stretched exponential distribution that characterizes many right-skewed distributions found in the natural and social sciences. Indeed, an ordinary exponential distribution — that is, a stretched exponential distribution with an exponent of 1 — generates strikingly accurate, even beautiful, models of both phenomena. Mindful of physicist Hermann Weyl's admonition that any choice between truth and beauty should favor beauty, I freely admit to sacrificing some ...
http://www.ssrn.com/abstract=905316
http://www.ssrn.com/1370395.htmlMon, 02 Feb 2015 14:27:40 GMTNew: The Algebra of Financial Asymmetry: A Schematic Approach to Semideviation and SemivarianceModern portfolio theory remains the dominant paradigm of financial risk management. Behavioral economics, however, targets one of modern portfolio theory’s greatest pitfalls: its symmetrical view of all deviations from expected return, positive or negative, as if investors viewed excess returns to be as troubling as failures to meet a targeted level of returns. This article evaluates a range of measures designed to gauge financial risk through semideviation or semivariance: the Sortino ratio, Morningside's upside and downside capture ratios, and the omega and kappa measures.
http://www.ssrn.com/abstract=2551401
http://www.ssrn.com/1366190.htmlMon, 19 Jan 2015 06:51:55 GMT