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The hierarchical feature regression (HFR) is a novel graph-based regularized regression estimator, which mobilizes insights from the domains of machine learning and graph theory to estimate robust parameters for a linear regression. The estimator constructs a supervised feature graph that decomposes parameters along its edges, adjusting first for common variation and successively incorporating idiosyncratic patterns into the fitting process. The graph structure has the effect of shrinking parameters towards group targets, where the extent of shrinkage is governed by a hyperparameter, and group compositions as well as shrinkage targets are determined endogenously. The method offers rich resources for the visual exploration of the latent effect structure in the data, and demonstrates good predictive accuracy and versatility when compared to a panel of commonly used regularization techniques across a range of empirical and simulated regression tasks.
Does political conflict with another country influence domestic consumers' daily consumption choices? We exploit the volatile US-China relations in 2018 and 2019 to analyze whether US consumers reduce their visits to Chinese restaurants when bilateral relations deteriorate. We measure the degree of political conflict through negativity in media reports and rely on smartphone location data to measure daily visits to over 190,000 US restaurants. A deterioration in US-China relations induces a significant decline in visits not only to Chinese but also to other foreign ethnic restaurants, while visits to typical American restaurants increase. We identify consumers' age, race, and cultural openness to moderate the strength of this ethnocentric effect.
The rise of shale gas and tight oil development has triggered a major debate about hydraulic fracturing (HF). In an effort to bring light to HF practices and their potential risks to water quality, many U.S. states have mandated disclosure for HF wells and the fluids used. We employ this setting to study whether targeting corporate activities that have dispersed externalities with transparency reduces their environmental impact. Examining salt concentrations that are considered signatures for HF impact, we find significant and lasting improvements in surface water quality between 9-14% after the mandates. Most of the improvement comes from the intensive margin. We document that operators pollute less per unit of production, cause fewer spills of HF fluids and wastewater and use fewer hazardous chemicals. Turning to how transparency regulation works, we show that it increases public pressure and enables social movements, which facilitates internalization.
This study compares the performance of various machine learning methods in predicting the outcomes of mergers and acquisitions (M&A), with application in merger arbitrage. Merger arbitrage capitalizes on price inefficiencies around merger announcements, empirically offering consistent, near-market-neutral returns with Sharpe ratios around 1.20 and a beta of 0.14. Leveraging logistic regression, random forest, gradient boosting machine, and neural network, I analyse 21,020 M&A deals with up to 522 predictors from 1999 to 2023. I examine two datasets: one with all features available prior to deal resolution, serving as an upper bound for predictability, and another with only features available on the announcement. Among the applied methods, XGBoost outperforms in predicting deal closure probabilities, with pseudo-out-of-sample receiver operating characteristic area under the curve (ROC-AUC) scores of 0.99 and 0.81 for the full-feature and announcement-date-only sets, respectively.
I apply these predictions to cash-only merger arbitrage from 2021 to 2023, using a classification method and testing a promising fair value investment criterion. I find that equal-weighted portfolios perform best, driven by diversification and small-size premia, achieving annualized alphas of 10 to 20% against the Fama-French five-factor model. XGBoost’s superior predictive power translates into the best merger arbitrage performance, delivering Sharpe ratios of up to 1.57 for long-only portfolios and 0.60 for zero-net-investment long-short strategies, with the latter maintaining market neutrality. I confirm these results during a second trading period from 2018 to 2020, revealing different market dynamics and similar or better model performance, with Sharpe ratios as high as 2.15.
These findings establish new benchmarks for M&A deal closure prediction, highlight the value of machine learning-driven strategies in enhancing merger arbitrage performance, and offer valuable insights for both researchers and practitioners.
This cumulative dissertation contains four self-contained chapters on stochastic games and learning in intertemporal choice.
Chapter 1 presents an experiment on value learning in a setting where actions have both immediate and delayed consequences. Subjects make a series of choices between abstract options, with values that have to be learned by sampling. Each option is associated with two payoff components: One is revealed immediately after the choice, the other with one round delay. Objectively, both payoff components are equally important, but most subjects systematically underreact to the delayed consequences. The resulting behavior appears impatient or myopic. However, there is no inherent reason to discount: All rewards are paid simultaneously, after the experiment. Elicited beliefs on the value of options are in accordance with choice behavior. These results demonstrate that revealed impatience may arise from frictions in learning, and that discounting does not necessarily reflect deep time preferences. In a treatment variation, subjects first learn passively from the evidence generated by others, before then making a series of own choices. Here, the underweighting of delayed consequences is attenuated, in particular for the earliest own decisions. Active decision making thus seems to play an important role in the emergence of the observed bias.
Chapter 2 introduces and proves existence of Markov quantal response equilibrium (QRE), an application of QRE to finite discounted stochastic games. We then study a specific case, logit Markov QRE, which arises when players react to total discounted payoffs using the logit choice rule with precision parameter λ. We show that the set of logit Markov QRE always contains a smooth path that leads from the unique QRE at λ = 0 to a stationary equilibrium of the game as λ goes to infinity. Following this path allows to solve arbitrary finite discounted stochastic games numerically; an implementation of this algorithm is publicly available as part of the package sgamesolver. We further show that all logit Markov QRE are ε-equilibria, with a bound for ε that is independent of the payoff function of the game and decreases hyperbolically in λ. Finally, we establish a link to reinforcement learning, by characterizing logit Markov QRE as the stationary points of a game dynamic that arises when all players follow the well-established reinforcement learning algorithm expected SARSA.
Chapter 3 introduces the logarithmic stochastic tracing procedure, a homotopy method to compute stationary equilibria for finite and discounted stochastic games. We build on the linear stochastic tracing procedure (Herings and Peeters 2004), but introduce logarithmic penalty terms as a regularization device, which brings two major improvements. First, the scope of the method is extended: it now has a convergence guarantee for all games of this class, rather than just generic ones. Second, by ensuring a smooth and interior solution path, computational performance is increased significantly. A ready-to-use implementation is publicly available. As demonstrated here, its speed compares quite favorable to other available algorithms, and it allows to solve games of considerable size in reasonable times. Because the method involves the gradual transformation of a prior into equilibrium strategies, it is possible to search the prior space and uncover potentially multiple equilibria and their respective basins of attraction. This also connects the method to established theory of equilibrium selection.
Chapter 4 introduces sgamesolver, a python package that uses the homotopy method to compute stationary equilibria of finite discounted stochastic games. A short user guide is complemented with discussion of the homotopy method, the two implemented homotopy functions logit Markov QRE and logarithmic tracing, and the predictor-corrector procedure and its implementation in sgamesolver. Basic and advanced use cases are demonstrated using several example games. Finally, we discuss the topic of symmetries in stochastic games.
This paper proposes tests for out-of-sample comparisons of interval forecasts based on parametric conditional quantile models. The tests rank the distance between actual and nominal conditional coverage with respect to the set of conditioning variables from all models, for a given loss function. We propose a pairwise test to compare two models for a single predictive interval. The set-up is then extended to a comparison across multiple models and/or intervals. The limiting distribution varies depending on whether models are strictly non-nested or overlapping. In the latter case, degeneracy may occur. We establish the asymptotic validity of wild bootstrap based critical values across all cases. An empirical application to Growth-at-Risk (GaR) uncovers situations in which a richer set of financial indicators are found to outperform a commonly-used benchmark model when predicting downside risk to economic activity.
Even as online advertising continues to grow, a central question remains: Who to target? Yet, advertisers know little about how to select from the hundreds of audience segments for targeting (and combinations thereof) for a profitable online advertising campaign. Utilizing insights from a field experiment on Facebook (Study 1), we develop a model that helps advertisers solve the cold-start problem of selecting audience segments for targeting. Our model enables advertisers to calculate the break-even performance of an audience segment to make a targeted ad campaign at least as profitable as an untargeted one. Advertisers can use this novel model to decide whether to test specific audience segments in their campaigns (e.g., in randomized controlled trials). We apply our model to data from the Spotify ad platform to study the profitability of different audience segments (Study 2). Approximately half of those audience segments require the click-through rate to double compared to an untargeted campaign, which is unrealistically high for most ad campaigns. Our model also shows that narrow segments require a lift that is likely not attainable, specifically when the data quality of these segments is poor. We confirm this theoretical finding in an empirical study (Study 3): A decrease in data quality due to Apple’s introduction of the App Tracking Transparency (ATT) framework more negatively affects the click-through rate of narrow (versus broad) audience segments.
In recent years, European regulators have debated restricting the time an online tracker can track a user to protect consumer privacy better. Despite the significance of these debates, there has been a noticeable absence of any comprehensive cost-benefit analysis. This article fills this gap on the cost side by suggesting an approach to estimate the economic consequences of lifetime restrictions on cookies for publishers. The empirical study on cookies of 54,127 users who received ∼128 million ad impressions over ∼2.5 years yields an average cookie lifetime of 279 days, with an average value of €2.52 per cookie. Only ∼13 % of all cookies increase their daily value over time, but their average value is about four times larger than the average value of all cookies. Restricting cookies’ lifetime to one year (two years) could potentially decrease their lifetime value by ∼25 % (∼19 %), which represents a potential decrease in the value of all cookies of ∼9 % (∼5%). Most cookies, however, would not be affected by lifetime restrictions of 12 or 24 months as 72 % (85 %) of the users delete their cookies within 12 (24) months. In light of the €10.60 billion cookie-based display ad revenue in Europe, such restrictions would endanger €904 million (€576 million) annually, equivalent to €2.08 (€1.33) per EU internet user. The article discusses these results' marketing strategy challenges and opportunities for advertisers and publishers.
Goal setting is vital in learning sciences, but the scientific evaluation of optimal learning goals is underexplored. This study proposes a novel methodological approach to determine optimal learning goals. The data in this study comes from a gamified learning app implemented in an undergraduate accounting course at a large German university. With a combination of decision trees and regression analyses, the goals connected to the badges implemented in the app are evaluated. The results show that the initial badge set already motivated learning strategies that led to better grades on the exam. However, the results indicate that the levels of the goals could be improved, and additional badges could be implemented. In addition to new goal levels, new goal types are also discussed. The findings show that learning goals initially determined by the instructors need to be evaluated to offer an optimal motivational effect. The new methodological approach used in this study can be easily transferred to other learning data sets to provide further insights.
We estimate the causal effect of shared e-scooter services on traffic accidents by exploiting the variation in the availability of e-scooter services induced by the staggered rollout across 93 cities in six countries. Police-reported accidents involving personal injuries in the average month increased by around 8.2% after shared e-scooters were introduced. Effects are large during summer and insignificant during winter. Further heterogeneity analysis reveals the largest estimated effects for cities with limited cycling infrastructure, while no effects are detectable in cities with high bike-lane density. This difference suggests that public policy can play a crucial role in mitigating accidents related to e-scooters and, more generally, to changes in urban mobility.
This study investigates the socio-economic characteristics, behavioral preferences, and consumption of individuals who own crypto-assets. Our empirical analysis utilizes data from a German personal finance management app where users connect their bank accounts and depots. We conducted a survey and elicited behavioral factors for financial decision-making. By combining survey with account and security account data, we identify crypto investors’ preferences for financial decision-making and financial advice. Our results suggest that, in particular, students or self-employed, young, and male individuals who are risk-seeking and impatient are more likely to have invested in crypto-assets. Most crypto owners have less experience with financial advisory. They see it as too time-consuming and qualitatively poor, and instead, they prefer to decide on their own as they have self-reported high financial literacy. Investigating their consumption in more detail we conclude that crypto investors more often spend on travelling, electronics, and food delivery and less on health. Our findings suggest policymakers in identifying high-risk consumers and investors, and help financial institutions develop appropriate products.
Background: The German Corona-Warn-App (CWA) is a contact tracing app to mitigate the spread of SARS-CoV-2. As of today, it has been downloaded approximately 45 million times.
Objective: This study aims to investigate the influence of (non)users’ social environments on the usage of the CWA during 2 periods with relatively lower death rates and higher death rates caused by SARS-CoV-2.
Methods: We conducted a longitudinal survey study in Germany with 833 participants in 2 waves to investigate how participants perceive their peer groups’ opinion about making use of the German CWA to mitigate the risk of SARS-CoV-2. In addition, we asked whether this perceived opinion, in turn, influences the participants with respect to their own decision to use the CWA. We analyzed these questions with generalized estimating equations. Further, 2 related sample tests were performed to test for differences between users of the CWA and nonusers and between the 2 points in time (wave 1 with the highest death rates observable during the pandemic in Germany versus wave 2 with significantly lower death rates).
Results: Participants perceived that peer groups have a positive opinion toward using the CWA, with more positive opinions by the media, family doctors, politicians, and virologists/Robert Koch Institute and a lower, only slightly negative opinion originating from social media. Users of the CWA perceived their peer groups’ opinions about using the app as more positive than nonusers do. Furthermore, the perceived positive opinion of the media (P=.001) and politicians (P<.001) was significantly lower in wave 2 compared with that in wave 1. The perceived opinion of friends and family (P<.001) as well as their perceived influence (P=.02) among nonusers toward using the CWA was significantly higher in the latter period compared with that in wave 1. The influence of virologists (in Germany primarily communicated via the Robert Koch Institute) had the highest positive effect on using the CWA (B=0.363, P<.001). We only found 1 decreasing effect of the influence of politicians (B=–0.098, P=.04).
Conclusions: Opinions of peer groups play an important role when it comes to the adoption of the CWA. Our results show that the influence of virologists/Robert Koch Institute and family/friends exerts the strongest effect on participants’ decisions to use the CWA while politicians had a slightly negative influence. Our results also indicate that it is crucial to accompany the introduction of such a contact tracing app with explanations and a media campaign to support its adoption that is backed up by political decision makers and subject matter experts.
Background: The German Corona-Warn-App (CWA) is a contact tracing app to mitigate the spread of SARS-CoV-2. As of today, it has been downloaded approximately 45 million times.
Objective: In this study, we investigate the influence of (non-)users' social environments on the usage of the CWA during two time periods with relatively lower death rates and higher death rates caused by SARS-CoV-2.
Methods: We conducted a longitudinal survey study in Germany with 833 participants in two waves to investigate how participants perceive their peer-groups opinion about making use of the German CWA to mitigate the risk of SARS-CoV-2. In addition, we asked whether this perceived opinion, in turn, influences the participants with respect to their own decision to use the CWA. We analyzed these questions with Generalized Estimating Equations (GEE). And with two-related-samples tests to test for differences between users of the CWA and non-users and between the two points in time (wave 1 with the highest death rates observable during the pandemic in Germany versus wave 2 with significantly lower death rates). Results: Participants perceive that peer-groups have a positive opinion towards using the CWA, with more positive opinions by the media, family doctors, politicians and virologists/RKI and a lower, only slightly negative opinion originating from social
media. Users of the CWA perceive their peer groups’ opinions about using the app as more positive than non-users do. Furthermore, the perceived positive opinion of the media and politicians is significantly lower in wave 2 compared to wave 1. The perceived opinion of friends and family as well as their perceived influence towards using the CWA is significantly higher in the latter period compared to wave 1. The influence of virologists (in Germany primarily communicated via the Robert Koch Institute) has the highest positive effect on using the CWA. We only find one decreasing effect of the influence of politicians.
Conclusions: Opinions of peer groups play an important role when it comes to the adoption of the CWA. Our results show that the influence of Virologists / Robert Koch Institute and family/friends exerts the strongest effect on participants decision to use the CWA while politicians had a slightly negative influence. Our results indicate that it is crucial to accompany the introduction of such a contact tracing app with explanations and a media campaign to support its adoption which is backed up by political decision-makers subject-matter experts.
The World Health Organization declared the emergence of the novel coronavirus (SARS-CoV-2) in January 2020. To trace infection chains, Germany launched its smartphone contact tracing app, the “Corona-Warn-App” (CWA), in June 2020. In order to be successful as a tool for fighting the pandemic, a high adoption rate is required in the population. We analyse the respective factors influencing app adoption based on the health belief model (HBM) with a cross-sectional online study including 1752 participants from Germany. The study was conducted with a certified panel provider from the end of December 2020 to January 2021. This model is primarily known from evaluations of medical treatments, such as breast cancer screenings, but it was rarely applied in prior work for a health-related information system such as the CWA. Our results indicate that intrinsic and extrinsic motivation to use the CWA are the strongest drivers of app use. In contrast, technical barriers, privacy concerns and lower income are the main inhibitors. Our findings contribute to the literature on the adoption of contact tracing apps by questioning actual users and non-users of the CWA, and we provide valuable insights for policymakers regarding influences of adoption and potential user groups of disease prevention technologies in times of pandemics.
This paper examines rent sharing in private investments in public equity (PIPEs) between newly public firms and private investors. The evidence suggests highly asymmetric rent sharing. Newly public firms earn a negative return of up to −15% in the first post-PIPE year, while investors benefit due to the ability to dictate transaction terms. The results are economically relevant because newly public firms are, at least in recent years, more likely to tap private rather than public markets for follow-on financing shortly after the initial public offering (IPO), and because the results for newly public firms contrast with those for the broad PIPE market in Lim et al. (2021). The study also contributes to the PIPE literature by offering an integrative view of competing theories of the cross-section of post-PIPE stock returns. We simultaneously test proxies for corporate governance, asymmetric information, bargaining power, and managerial entrenchment. While all explanations have univariate predictive power for the post-PIPE performance, only the proxies for corporate governance and asymmetric information are robust in ceteris-paribus tests.
Rezension zu: Social preferences: an introduction to behavioural economics and experimental research, by Michalis Drouvelis, Newcastle upon Tyne: Agenda Publishing, 2021, 205 pages, £22.99, ISBN 978-1-78821-417-9 (paperback).
The present study investigates the moderating effect of usage intensity of the social networking site (SNS) Instagram (IG) on the influence of advertisement disclosure types on advertising performance. A national sample (N = 566) participated in a randomized online experiment including a real influencer and followers in order to investigate how different advertisement disclosure types affect advertising performance and how usage intensity moderates this effect. We find that disclosing an influencer’s postings with “#ad” increases the trustworthiness of the influencer and the general credibility of the posting for heavy users, but not for light users. Followership of a user has been found to strongly improve all researched variables (attitude toward product placement, trustworthiness of the spokesperson and general credibility of the posting). This study adds to literature the first distinction on heavy and light usage intensity, and on followership of an IG user when regarding the effects of advertisement disclosure types on advertising performance. To conclude, we present a number of recommendations regarding how advertisers, influencers, and SNS providers should develop strategies for monitoring, understanding, and responding to different social media users, e.g., to closely monitor an influencer’s audience to identify heavy users and optimally target them.
The importance of agile methods has increased in recent years, not only to manage IT projects but also to establish flexible and adaptive organisational structures, which are essential to deal with disruptive changes and build successful digital business strategies. This paper takes an industry-specific perspective by analysing the dissemination, objectives and relative popularity of agile frameworks in the German banking sector. The data provides insights into expectations and experiences associated with agile methods and indicates possible implementation hurdles and success factors. Our research provides the first comprehensive analysis of agile methods in the German banking sector. The comparison with a selected number of fintechs has revealed some differences between banks and fintechs. We found that almost all banks and fintechs apply agile methods in IT projects. However, fintechs have relatively more experience with agile methods than banks and use them more intensively. Scrum is the most relevant framework used in practice. Scaled agile frameworks are so far negligible in the German banking sector. Acceleration of projects is apparently the most important objective of deploying agile methods. In addition, agile methods can contribute to cost savings and lead to improved quality and innovation performance, though for banks it is evidently more challenging to reach their respective targets than for fintechs. Overall our findings suggest that German banks are still in a maturing process of becoming more agile and that there is room for an accelerated adoption of agile methods in general and scaled agile frameworks in particular.
We use census data to show that structural transformation reflects a fundamental reallocation of labour from goods to services, instead of a relabelling that occurs when goods-producing firms outsource their in-house service production. The novelty of our approach is that it categorizes labour by occupations, which are invariant to outsourcing. We find that the reallocation of labour from goods-producing to service-producing occupations is a robust feature in censuses from around the world and different time periods. To understand the underlying forces, we propose a tractable model in which uneven occupation-specific technological change generates structural transformation of occupation employment.
The crowdfunding of altruism
(2022)
This paper introduces a machine learning approach to quantify altruism from the linguistic style of textual documents. We apply our method to a central question in (social) entrepreneurship: How does altruism impact entrepreneurial success? Specifically, we examine the effects of altruism on crowdfunding outcomes in Initial Coin Offerings (ICOs). The main result suggests that altruism and ICO firm valuation are negatively related. We, then, explore several channels to shed some light on whether the negative altruism-valuation relation is causal. Our findings suggest that it is not altruism that causes lower firm valuation; rather, low-quality entrepreneurs select into altruistic projects, while the marginal effect of altruism on high-quality entrepreneurs is actually positive. Altruism increases the funding amount in ICOs in the presence of high-quality projects, low asymmetric information, and strong corporate governance.