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What institutional arrangements for an independent central bank with a price stability mandate promote good policy outcomes when unconventional policies become necessary? Unconventional monetary policy poses challenges. The large scale asset purchases needed to counteract the zero lower bound on nominal interest rates have uncomfortable fiscal and distributional consequences and require central banks to assume greater risks on their balance sheets.
In his paper, Athanasios Orphanides draws lessons from the experience of the Bank of Japan (BoJ) since the late 1990s for the institutional design of independent central banks. He comes to the conclusion that lack of clarity on the precise definition of price stability, coupled with concerns about the legitimacy of large balance sheet expansions, hinders policy: It encourages the central bank to eschew the decisive quantitative easing needed to reflate the economy and instead to accommodate too-low inflation. The BoJ’s experience with the zero lower bound suggests important benefits from a clear definition of price stability as a symmetric 2% goal for inflation, which the Bank adopted in 2013.
The paper illustrates based on an example the importance of consistency between the empirical measurement and the concept of variables in estimated macroeconomic models. Since standard New Keynesian models do not account for demographic trends and sectoral shifts, the authors proposes adjusting hours worked per capita used to estimate such models accordingly to enhance the consistency between the data and the model. Without this adjustment, low frequency shifts in hours lead to unreasonable trends in the output gap, caused by the close link between hours and the output gap in such models.
The retirement wave of baby boomers, for example, lowers U.S. aggregate hours per capita, which leads to erroneous permanently negative output gap estimates following the Great Recession. After correcting hours for changes in the age composition, the estimated output gap closes gradually instead following the years after the Great Recession.
Financial market interactions can lead to large and persistent booms and recessions. Instability is an inherent threat to economies with speculative financial markets. A central bank’s interest rate setting can amplify the expectation feedback in the financial market and this can lead to unstable dynamics and excess volatility. The paper suggests that policy institutions may be well-advised to handle tools like asset price targeting with care since such instruments might add a structural link between asset prices and macroeconomic aggregates. Neither stock prices nor indices are a good indicator to base decisions on.
The level of capital tax gains has high explanatory power regarding the question of what drives economic inequality. On this basis, the authors develop a simple, yet micro-founded portfolio selection model to explain the dynamics of wealth inequality given empirical tax series in the US. The results emphasize that the level and the transition of speed of wealth inequality depend crucially on the degree of capital taxation. The projections predict that – continuing on the present path of capital taxation in the US – the gap between rich and poor is expected to shrink whereas “massive” tax cuts will further increase the degree of wealth concentration.
We investigate the characteristics of infrastructure as an asset class from an investment perspective of a limited partner. While non U.S. institutional investors gain exposure to infrastructure assets through a mix of direct investments and private fund vehicles, U.S. investors predominantly invest in infrastructure through private funds. We find that the stream of cash flows delivered by private infrastructure funds to institutional investors is very similar to that delivered by other types of private equity, as reflected by the frequency and amounts of net cash flows. U.S. public pension funds perform worse than other institutional investors in their infrastructure fund investments, although they are exposed to underlying deals with very similar project stage, concession terms, ownership structure, industry, and geographical location. By selecting funds that invest in projects with poor financial performance, U.S. public pension funds have created an implicit subsidy to infrastructure as an asset class, which we estimate within the range of $730 million to $3.16 billion per year depending on the benchmark.
Direct financing of consumer credit by individual investors or non-bank institutions through an implementation of marketplace lending is a relatively new phenomenon in financial markets. The emergence of online platforms has made this type of financial intermediation widely available. This paper analyzes the performance of marketplace lending using proprietary cash flow data for each individual loan from the largest platform, Lending Club. While individual loan characteristics would be important for amateur investors holding a few loans, sophisticated lenders, including institutional investors, usually form broad portfolios to benefit from diversification. We find high risk-adjusted performance of approximately 40 basis points per month for these basic loan portfolios. This abnormal performance indicates that Lending Club, and similar marketplace lenders, are likely to attract capital to finance a growing share of the consumer credit market. In the absence of a competitive response from traditional credit providers, these loans lower costs to the ultimate borrowers and increase returns for the ultimate lenders.
We study the relevance of signaling and marketing as explanations for the discount control mechanisms that a closed-end fund may choose to adopt in its prospectus. These policies are designed to narrow the potential gap between share price and net asset value, measured by the fund’s discount. The two most common discount control mechanisms are explicit discretion to repurchase shares based on the magnitude of the fund discount and mandatory continuation votes that provide shareholders the opportunity to liquidate the fund. We find very limited evidence that a discount control mechanism serves as costly signal of information. Funds with mandatory voting are not more likely to delist than the rest of the CEFs in general or whenever the fund discount is large. Similarly, funds that explicitly discuss share repurchases as a potential response do not subsequently buy back shares more often when discounts do increase. Instead, the existence of these policies is more consistent with marketing explanations because the policies are associated with an increased probability of issuing more equity in subsequent periods.
This paper investigates how biases in macroeconomic forecasts are associated with economic surprises and market responses across asset classes around US data announcements. We find that the skewness of the distribution of economic forecasts is a strong predictor of economic surprises, suggesting that forecasters behave strategically (rational bias) and possess private information. Our results also show that consensus forecasts of US macroeconomic releases embed anchoring. Under these conditions, both economic surprises and the returns of assets that are sensitive to macroeconomic conditions are predictable. Our findings indicate that local equities and bond markets are more predictable than foreign markets, currencies and commodities. Economic surprises are found to link to asset returns very distinctively through the stages of the economic cycle, whereas they strongly depend on economic releases being inflation- or growth-related. Yet, when forecasters fail to correctly forecast the direction of economic surprises, regret becomes a relevant cognitive bias to explain asset price responses. We find that the behavioral and rational biases encountered in US economic forecasting also exists in Continental Europe, the United Kingdom and Japan, albeit, to a lesser extent.
In the secondary art market, artists play no active role. This allows us to isolate cultural influences on the demand for female artists’ work from supply-side factors. Using 1.5 million auction transactions in 45 countries, we document a 47.6% gender discount in auction prices for paintings. The discount is higher in countries with greater gender inequality. In experiments, participants are unable to guess the gender of an artist simply by looking at a painting and they vary in their preferences for paintings associated with female artists. Women's art appears to sell for less because it is made by women.
While record-making prices at art auctions receive headline news coverage, artists typically do not receive any direct proceeds from those sales. Early-stage creative work in any field is perennially difficult to value, but the valuation, reward, and incentivization for artistic labor are particularly fraught. A core challenge in studying the real return on artists’ work is the extreme difficulty accessing data from when an artwork was first sold. Galleries keep private records that are difficult to access and to match to public auction results. This paper, for the first time, uses archivally sourced primary market records, for the artists Jasper Johns and Robert Rauschenberg. Although this approach restricts the size of the data set, this innovative method shows much more accurate returns on art than typical regression and hedonic models. We find that if Johns and Rauschenberg had retained 10% equity in their work when it was first sold, the returns to them when the work was resold at auction would have outperformed the US S&P 500 by between 2 and 986 times. The implication of this work opens up vast policy recommendations with regard to secondary art market sales, entrepreneurial strategies using blockchain technology, and implications about how we compensate creative work.
We study the introduction of single-market liquidity provider incentives in fragmented securities markets. Specifically, we investigate whether fee rebates for liquidity providers enhance liquidity on the introducing market and thereby increase its competitiveness and market share. Further, we analyze whether single-market liquidity provider incentives increase overall market liquidity available for market participants. Therefore, we measure the specific liquidity contribution of individual markets to the aggregate liquidity in the fragmented market environment. While liquidity and market share of the venue introducing incentives increase, we find no significant effect for turnover and liquidity of the whole market.
Reliability and relevance of fair values : private equity investments and investee fundamentals
(2018)
We directly test the reliability and relevance of fair values reported by listed private equity firms (LPEs), where the unit of account for fair value measurement attribute (FVM) is an investment stake in an individual investee company. FVMs are observable for multiple investment stakes, fair values are economically important, and granular data on investee economic fundamentals that should underpin fair values are available in public disclosures. We find that LPE fund managers determine valuations based on accounting-based fundamentals—equity book value and net income—that are in line with those investors derive for listed companies. Additionally, our findings suggest that LPE fund managers apply a lower valuation weight to investee net income if direct market inputs are unobservable during investment value estimation. We interpret these findings as evidence that LPE fund managers do not appear mechanically to apply market valuation weights for publicly traded investees when determining valuations of non-listed. We also document that the judgments that LPE fund managers apply when determining investee valuations appear to be perceived as reliable by their investors.
We study the impact of transparency on liquidity in OTC markets. We do so by providing an analysis of liquidity in a corporate bond market without trade transparency (Germany), and comparing our findings to a market with full post-trade disclosure (the U.S.). We employ a unique regulatory dataset of transactions of German financial institutions from 2008 until 2014 to find that: First, overall trading activity is much lower in the German market than in the U.S. Second, similar to the U.S., the determinants of German corporate bond liquidity are in line with search theories of OTC markets. Third, surprisingly, frequently traded German bonds have transaction costs that are 39-61 bp lower than a matched sample of bonds in the U.S. Our results support the notion that, while market liquidity is generally higher in transparent markets, a sub-set of bonds could be more liquid in more opaque markets because of investors "crowding" their demand into a small number of more actively traded securities.
This paper analyzes how the combination of borrowing constraints and idiosyncratic risk affects the equity premium in an overlapping generations economy. I find that introducing a zero-borrowing constraint in an economy without idiosyncratic risk increases the equity premium by 70 percent, which means that the mechanism described in Constantinides, Donaldson, and Mehra (2002) is dampened because of the large number of generations and production. With social security the effect of the zero-borrowing constraint is a lot weaker. More surprisingly, when I introduce idiosyncratic labor income risk in an economy without a zero-borrowing constraint, the equity premium increases by 50 percent, even though the income shocks are independent of aggregate risk and are not permanent. The reason is that idiosyncratic risk makes the endogenous natural borrowing limits much tighter, so that they have a similar effect to an exogenously imposed zero-borrowing constraint. This intuition is confirmed when I add idiosyncratic risk in an economy with a zero-borrowing constraint: neither the equity premium nor the Sharpe ratio change, because the zero-borrowing constraint is already tighter than the natural borrowing limits that result when idiosyncratic risk is added.
We propose a spatiotemporal approach for modeling risk spillovers using time-varying proximity matrices based on observable financial networks and introduce a new bilateral specification. We study covariance stationarity and identification of the model, and analyze consistency and asymptotic normality of the quasi-maximum-likelihood estimator. We show how to isolate risk channels and we discuss how to compute target exposure able to reduce system variance. An empirical analysis on Euro-area cross-country holdings shows that Italy and Ireland are key players in spreading risk, France and Portugal are the major risk receivers, and we uncover Spain's non-trivial role as risk middleman.
We show that bond purchases undertaken in the context of quantitative easing efforts by the European Central Bank created a large mispricing between the market for German and Italian government bonds and their respective futures contracts. On top of the direct effect the buying pressure exerted on bond prices, we show three indirect effects through which the scarcity of bonds, resulting from the asset purchases, drove a wedge between the futures contracts and the underlying bonds: the deterioration of bond market liquidity, the increased bond specialness on the repurchase agreement market, and the greater uncertainty about bond availability as collateral.
We study the role of various trader types in providing liquidity in spot and futures markets based on complete order-book and transactions data as well as cross-market trader identifiers from the National Stock Exchange of India for a single large stock. During normal times, short-term traders who carry little inventory overnight are the primary intermediaries in both spot and futures markets, and changes in futures prices Granger-cause changes in spot prices. However, during two days of fast crashes, Granger-causality ran both ways. Both crashes were due to large-scale selling by foreign institutional investors in the spot market. Buying by short-term traders and cross-market traders was insufficient to stop the crashes. Mutual funds, patient traders with better trade-execution quality who were initially slow to move in, eventually bought sufficient quantities leading to price recovery in both markets. Our findings suggest that market stability requires the presence of well-capitalized standby liquidity providers.
An important assumption underlying the designation of some insurers as systemically important is that their overlapping portfolio holdings can result in common selling. We measure the overlap in holdings using cosine similarity, and show that insurers with more similar portfolios have larger subsequent common sales. This relationship can be magnified for some insurers when they are regulatory capital constrained or markets are under stress. When faced with an exogenous liquidity shock, insurers with greater portfolio similarity have even larger common sales that impact prices. Our measure can be used by regulators to predict which institutions may contribute most to financial instability through the asset liquidation channel of risk transmission.
This paper investigates inertia within and across banks in retail deposit markets using detailed panel data on consumer choices and account characteristics. In a structural choice model, I find that costs of inertia are around one third higher for switching accounts across compared to switching within banks. Observable proxies of bank-level switching costs (number and type of additional financial products) explain most of this cost premium, while online banking usage reduces inertia. Consistent with theory, I provide evidence that banks incorporate inertia in their pricing as older accounts pay lower rates than comparable newer accounts. Counterfactual policies reducing inertia shift market share to more competitive smaller banks, but only eliminating inertia within banks already results in high potential gains in consumer surplus. This suggests that facilitating bank switching alone might be insufficient to improve consumer choices.
In recent years European financial regulation has experienced a tremendous reorientation with respect to the shadow banking system, which manifested first and foremost in its reframing as market-based finance. Initially identified as a source of systemic risk certain initiatives did not only fall much behind the envisaged changes but all to the contrary have been substantially modified in a way that they now aim at revitalizing these activities. The reorientation of European regulatory agency on shadow banking post-crisis, from curtailing it to facilitating resilient market-based finance, has been a cause for irritation by academic observers, dismissed by some as mere rebranding or taken as a sign of regulatory capture. All to the contrary, this paper documents the central role of regulatory agency in shadow banking’s reconfiguration. It does so by analyzing the European initiatives concerning the regulation of Asset-Backed Commercial Paper (ABCP) and another prime example of shadow banking, Money Market Mutual Funds (MMFs). Based on documentary analysis and expert interviews we trace the way the recently published EU frameworks for MMFs and ABCP have been designed (in particular the STS, CRR and MMF regulation in 2017). Furthermore, we show how they have been transformed in such a way that their final versions allow to re-establish the shadow banking chain linking MMFs, the ABCP market and arguably the regular banking system. This transformation is driven by a new form of pro-active European regulatory agency which aims at creating a regulatory infrastructure able to sustain the orderly flow of real economy debt. Far from being captured by the industry, they did so consciously and in cooperation with private actors in order to maintain a channel for credit creation outside of bank credit, a task made more complicated by the rushed politicized final negotiations coupled with technical complexity. This paper thereby contributes to a new strand of literature, seeing the creation and reconfiguration of the shadow banking system as characterized by the active and conscious role of state actors.
We propose a unified framework to measure the effects of different reforms of the pension system on retirement ages and macroeconomic indicators in the face of demographic change. A rich overlapping generations (OLG) model is built and endogenous retirement decisions are explicitly modeled within a public pension system. Heterogeneity with respect to consumption preferences, wage profiles, and survival rates is embedded in the model. Besides the expected direct effects of these reforms on the behavior of households, we observe that feedback effects do occur. Results suggest that individual retirement decisions are strongly influenced by numerous incentives produced by the pension system and macroeconomic variables, such as the statutory eligibility age, adjustment rates, the presence of a replacement rate, and interest rates. Those decisions, in turn, have several impacts on the macro-economy which can create feedback cycles working through equilibrium effects on interest rates and wages. Taken together, these reform scenarios have strong implications for the sustainability of pension systems. Because of the rich nature of our unified model framework, we are able to rank the reform proposals according to several individual and macroeconomic measures, thereby providing important support for policy recommendations on pension systems.
The paper investigates the determinants of the idiosyncratic volatility puzzle by allowing linkages across asset returns. The first contribution of the paper is to show that portfolios sorted by increasing indegree computed on the network based on Granger causality test have lower expected returns, not related to idiosyncratic volatility. Secondly, empirical evidence indicates that stocks with higher idiosyncratic volatility have the lower exposition on the indegree risk factor.
We examine how a firms' investment behavior affects the investment of a neighboring firm. Economic theory yields ambiguous predictions regarding the direction of firm peer effects and consistent with earlier work, we find that firms display similar investment behavior within an area using OLS analysis. Exploiting time-variation in the rise of U.S. states' corporate income taxes and utilizing heterogeneity in firms' exposure to increases in corporate income tax rates, we identify the causal impact of local firms' investments. Using this as an instrumental variable in a 2SLS estimation, we find that an increases in local firms' investment reduces the investment of a local peer firm. This effect is more pronounced if local competition among firms is stronger and supports theories that firm investments are strategic substitutes due to competition.
We use minutes from 17,000 financial advisory sessions and corresponding client portfolio data to study how active client involvement affects advisor recommendations and portfolio outcomes. We find that advisors confronted with acquiescent clients stick to their standards and recommend expensive but well diversified mutual fund portfolios. However, if clients take an active role in the meetings, advisors deviate markedly from their standards, resulting in poorer portfolio diversification and lower Sharpe ratios. Our findings that advisors cater to client requests parallel the phenomenon of doctors prescribing antibiotics to insistent patients even if inappropriate, and imply that pandering diminishes the quality of advice.
This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric captures the information benefit of deferral. Costs of deferral may result from both the agent's relative impatience as well as her consumption smoothing needs. If the relatively impatient agent is risk neutral, optimal contracts take a simple form in that they only reward maximal performance for at most two payout dates. If the agent is additionally risk-averse, optimal contracts stipulate rewards for a larger selection of dates and performance states: The performance hurdle to obtain the same level of compensation is increasing over time whereas the pay-performance sensitivity is declining.
A growing body of literature shows the importance of financial literacy in households' financial decisions. However, fewer studies focus on understanding the determinants of financial literacy. Our paper fills this gap by analyzing a specific determinant, the educational system, to explain the heterogeneity in financial literacy scores across Germany. We suggest that the lower financial literacy observed in East Germany is partially caused by a different institutional framework experienced during the Cold War, more specifically, by the socialist educational system of the GDR which affected specific cohorts of individuals. By exploiting the unique set-up of the German reunification, we identify education as a channel through which institutions and financial literacy are related in the German context.
How demanding and consistent is the 2018 stress test design in comparison to previous exercises?
(2018)
Bank regulators have the discretion to discipline banks by executing enforcement actions to ensure that banks correct deficiencies regarding safe and sound banking principles. We highlight the trade-offs regarding the execution of enforcement actions for financial stability. Following this we provide an overview of the differences in the legal framework governing supervisors’ execution of enforcement actions in the Banking Union and the United States. After discussing work on the effect of enforcement action on bank behaviour and the real economy, we present data on the evolution of enforcement actions and monetary penalties by U.S. regulators. We conclude by noting the importance of supervisors to levy efficient monetary penalties and stressing that a division of competences among different regulators should not lead to a loss of efficiency regarding the execution of enforcement actions.
A new governance architecture for european financial markets? Towards a european supervision of CCPs
(2018)
Does the new European outlook on financial markets, as voiced by the EU Commission since the beginning of the Capital Market Unions imply a movement of the EU towards an alignment of market integration and direct supervision of common rules? This paper sets out to answer this question for the case of common supervision for Central Counterparties (CCPs) in the European Union. Those entities gained crucial importance post-crisis due to new regulation which requires the mandatory clearing of standardized derivative contracts, transforming clearing houses into central nodes for cross-border financial transactions. While the EU-wide regulatory framework EMIR, enacted in 2012, stipulates common regulatory requirements, the framework still relies on home-country supervision of those rules, arguably leading to regulatory as well as supervisory arbitrage. Therefore, the regulatory reform to stabilize the OTC derivatives market replicated at its center a governance flaw, which had been identified as one of the major causes for the gravity of the financial crisis in the EU: the coupling of intense competition based on private risk management systems with a national supervision of European rules. This paper traces the history of this problem awareness and inquires which factors account for the fact that only in 2017 serious negotiations at the EU level ensued that envisioned a common supervision of CCPs to fix the flawed system of governance. Analyzing this shift in the European governance architecture, we argue that Brexit has opened a window of opportunity for a centralization of supervision for CCPs. Brexit aligns the urgency of the problem with material interests of crucial political stakeholder, in particular of Germany and France, providing the possibility for a grand European bargain.
Improving financial conditions of individuals requires an understanding of the mechanisms through which bad financial decision-making leads to worse financial outcomes. From a theoretical point of view, a key candidate inducing mistakes in financial decision-making are so called present-biased preferences, which are one of the cornerstones of behavioral economics. According to theory, present-biased households should behave systematically different when it comes to consumption and saving decisions, as they should be more prone to spending too much and saving too little.
In this policy letter we show how high frequency financial transaction data available in digitized form allows to precisely categorize individual financial-decision making to be present-biased or not. Using this categorization, we find that one out of five individuals in our sample exhibits present-bias and that this present-biased behavior is associated with a stronger use of overdrafts. As overdrafts represent a particularly expensive way of short-term borrowing, their systematic use can be interpreted as a measure of suboptimal financial-decision making. Overall, our results indicate that the combination of economic theory and Big Data is able to generate valuable insights with applications for policy makers and businesses alike.
The object of this study is one of the most ambitious projects of twentieth-century art history: Aby Warburg's 'Atlas Mnemosyne', conceived in the summer of 1926 – when the first mention of a 'Bilderatlas', or "atlas of images", occurs in his journal – and truncated three years later, unfinished, by his sudden death in October 1929. Mnemosyne consisted in a series of large black panels, about 170x140 cm., on which were attached black-and-white photographs of paintings, sculptures, book pages, stamps, newspaper clippings, tarot cards, coins, and other types of images. Warburg kept changing the order of the panels and the position of the images until the very end, and three main versions of the Atlas have been recorded: one from 1928 (the "1-43 version", with 682 images); one from the early months of 1929, with 71 panels and 1050 images; and the one Warburg was working on at the time of his death, also known as the "1-79 version", with 63 panels and 971 images (which is the one we will examine). But Warburg was planning to have more panels – possibly many more – and there is no doubt that Mnemosyne is a dramatically unfinished and controversial object of study.
Patterns and interpretation
(2017)
One thing for sure: digitization has completely changed the literary archive. People like me used to work on a few hundred nineteenth-century novels; today, we work on thousands of them; tomorrow, hundreds of thousands. This has had a major effect on literary history, obviously enough, but also on critical methodology; because, when we work on 200,000 novels instead of 200, we are not doing the same thing, 1,000 times bigger; we are doing a different thing. The new scale changes our relationship to our object, and in fact 'it changes the object itself'.
The Emotions of London
(2016)
A few years ago, a group formed by Ben Allen, Cameron Blevins, Ryan Heuser, and Matt Jockers decided to use topic modeling to extract geographical information from nineteenth-century novels. Though the study was eventually abandoned, it had revealed that London-related topics had become significantly more frequent in the course of the century, and when some of us were later asked to design a crowd-sourcing experiment, we decided to add a further dimension to those early findings, and see whether London place-names could become the cornerstone for an emotional geography of the city.
Literature, measured
(2016)
There comes a moment, in digital humanities talks, when someone raises the hand and says: "Ok. Interesting. But is it really new?" Good question... And let's leave aside the obvious lines of defense, such as "but the field is still only at its beginning!", or "and traditional literary criticism, is that always new?" All true, and all irrelevant; because the digital humanities have presented themselves as a radical break with the past, and must therefore produce evidence of such a break. And the evidence, let's be frank, is not strong. What is there, moreover, comes in a variety of forms, beginning with the slightly paradoxical fact that, in a new approach, not everything has to be new. When "Network Theory, Plot Analysis” pointed out, in passing, that a network of Hamlet had Hamlet at its center, the New York Times gleefully mentioned the passage as an unmistakable sign of stupidity. Maybe; but the point, of course, was not to present Hamlet’s centrality as a surprise; it was exactly the opposite: had the new approach not found Hamlet at the center of the play, its plausibility would have disintegrated. Before using network theory for dramatic analysis, I had to test it, and prove that it corroborated the main results of previous research.
Of the novelties introduced by digitization in the study of literature, the size of the archive is probably the most dramatic: we used to work on a couple of hundred nineteenth-century novels, and now we can analyze thousands of them, tens of thousands, tomorrow hundreds of thousands. It's a moment of euphoria, for quantitative literary history: like having a telescope that makes you see entirely new galaxies. And it's a moment of truth: so, have the digital skies revealed anything that changes our knowledge of literature? This is not a rhetorical question. In the famous 1958 essay in which he hailed "the advent of a quantitative history" that would "break with the traditional form of nineteenth-century history", Fernand Braudel mentioned as its typical materials "demographic progressions, the movement of wages, the variations in interest rates [...] productivity [...] money supply and demand." These were all quantifiable entities, clearly enough; but they were also completely new objects compared to the study of legislation, military campaigns, political cabinets, diplomacy, and so on. It was this double shift that changed the practice of history; not quantification alone. In our case, though, there is no shift in materials: we may end up studying 200,000 novels instead of 200; but, they're all still novels. Where exactly is the novelty?
Different scales, different features. It’s the main difference between the thesis we have presented here, and the one that has so far dominated the study of the paragraph. By defining it as "a sentence writ large", or, symmetrically, as "a short discourse", previous research was implicitly asserting the irrelevance of scale: sentence, paragraph, and discourse were all equally involved in the "development of one topic". We have found the exact opposite: 'scale is directly correlated to the differentiation of textual functions'. By this, we don't simply mean that the scale of sentences or paragraphs allows us to "see" style or themes more clearly. This is true, but secondary. Paragraphs allows us to "see" themes, because themes fully "exist" only at the scale of the paragraph. Ours is not just an epistemological claim, but an ontological one: if style and themes and episodes exist in the form they do, it's because writers work at different scales – and do different things according to the level at which they are operating.
Loudness in the novel
(2014)
The novel is composed entirely of voices: the most prominent among them is typically that of the narrator, which is regularly intermixed with those of the various characters. In reading through a novel, the reader "hears" these heterogeneous voices as they occur in the text. When the novel is read out loud, the voices are audibly heard. They are also heard, however, when the novel is read silently: in this la!er case, the voices are not verbalized for others to hear, but acoustically created and perceived in the mind of the reader. Simply put: sound, in the context of the novel, is fundamentally a product of the novel’s voices. This conception of sound mechanics may at first seem unintuitive—sound seems to be the product of oral reading—but it is only by starting with the voice that one can fully appreciate sound’s function in the novel. Moreover, such a conception of sound mechanics finds affirmation in the works of both Mikhail Bakhtin and Elaine Scarry: "In the novel," writes Bakhtin, "we can always hear voices (even while reading silently to ourselves)."
The concept of length, the concept is synonymous, the concept is nothing more than, the proper definition of a concept ... Forget programs and visions; the operational approach refers specifically to concepts, and in a very specific way: it describes the process whereby concepts are transformed into a series of operations—which, in their turn, allow to measure all sorts of objects. Operationalizing means building a bridge from concepts to measurement, and then to the world. In our case: from the concepts of literary theory, through some form of quantification, to literary texts.
We would study not style as such, but style 'at the scale of the sentence': the lowest level, it seemed, at which style as a distinct phenomenon became visible. Implicitly, we were defining style as a combination of smaller linguistic units, which made it, in consequence, particularly sensitive to changes in scale—from words to clauses to whole sentences.
The nineteenth century in Britain saw tumultuous changes that reshaped the fabric of society and altered the course of modernization. It also saw the rise of the novel to the height of its cultural power as the most important literary form of the period. This paper reports on a long-term experiment in tracing such macroscopic changes in the novel during this crucial period. Specifically, we present findings on two interrelated transformations in novelistic language that reveal a systemic concretization in language and fundamental change in the social spaces of the novel. We show how these shifts have consequences for setting, characterization, and narration as well as implications for the responsiveness of the novel to the dramatic changes in British society.
This paper has a second strand as well. This project was simultaneously an experiment in developing quantitative and computational methods for tracing changes in literary language. We wanted to see how far quantifiable features such as word usage could be pushed toward the investigation of literary history. Could we leverage quantitative methods in ways that respect the nuance and complexity we value in the humanities? To this end, we present a second set of results, the techniques and methodological lessons gained in the course of designing and running this project.
If there is one thing to be learned from David Foster Wallace, it is that cultural transmission is a tricky game. This was a problem Wallace confronted as a literary professional, a university-based writer during what Mark McGurl has called the Program Era. But it was also a philosophical issue he grappled with on a deep level as he struggled to combat his own loneliness through writing. This fundamental concern with literature as a social, collaborative enterprise has also gained some popularity among scholars of contemporary American literature, particularly McGurl and James English: both critics explore the rules by which prestige or cultural distinction is awarded to authors (English; McGurl). Their approach requires a certain amount of empirical work, since these claims move beyond the individual experience of the text into forms of collective reading and cultural exchange influenced by social class, geographical location, education, ethnicity, and other factors. Yet McGurl and English's groundbreaking work is limited by the very forms of exclusivity they analyze: the protective bubble of creative writing programs in the academy and the elite economy of prestige surrounding literary prizes, respectively. To really study the problem of cultural transmission, we need to look beyond the symbolic markets of prestige to the real market, the site of mass literary consumption, where authors succeed or fail based on their ability to speak to that most diverse and complicated of readerships: the general public. Unless we study what I call the social lives of books, we make the mistake of keeping literature in the same ascetic laboratory that Wallace tried to break out of with his intense authorial focus on popular culture, mass media, and everyday life.
In the last few years, literary studies have experienced what we could call the rise of quantitative evidence. This had happened before of course, without producing lasting effects, but this time it’s probably going to be different, because this time we have digital databases, and automated data retrieval. As Michel’s and Lieberman’s recent article on "Culturomics" made clear, the width of the corpus and the speed of the search have increased beyond all expectations: today, we can replicate in a few minutes investigations that took a giant like Leo Spitzer months and years of work. When it comes to phenomena of language and style, we can do things that previous generations could only dream of.
When it comes to language and style. But if you work on novels or plays, style is only part of the picture. What about plot – how can that be quantified? This paper is the beginning of an answer, and the beginning of the beginning is network theory. This is a theory that studies connections within large groups of objects: the objects can be just about anything – banks, neurons, film actors, research papers, friends... – and are usually called nodes or vertices; their connections are usually called edges; and the analysis of how vertices are linked by edges has revealed many unexpected features of large systems, the most famous one being the so-called "small-world" property, or "six degrees of separation": the uncanny rapidity with which one can reach any vertex in the network from any other vertex. The theory proper requires a level of mathematical intelligence which I unfortunately lack; and it typically uses vast quantities of data which will also be missing from my paper. But this is only the first in a series of studies we’re doing at the Stanford Literary Lab; and then, even at this early stage, a few things emerge.
This paper is the report of a study conducted by five people – four at Stanford, and one at the University of Wisconsin – which tried to establish whether computer-generated algorithms could "recognize" literary genres. You take 'David Copperfield', run it through a program without any human input – "unsupervised", as the expression goes – and ... can the program figure out whether it's a gothic novel or a 'Bildungsroman'? The answer is, fundamentally, Yes: but a Yes with so many complications that it is necessary to look at the entire process of our study. These are new methods we are using, and with new methods the process is almost as important as the results.
We develop a model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. We show that when dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. Our empirical analysis supports the model's predictions.
In the last decade, central bank interventions, flights to safety, and the shift in derivatives clearing resulted in exceptionally high demand for high quality liquid assets, such as German treasuries, in the securities lending market besides the traditional repo market activities. Despite the high demand, the realizable securities lending income has remained economically negligible for most beneficial owners. We provide empirical evidence of pricing inefficiencies in the non-transparent, oligopolistic securities lending market for German treasuries from 2006 to 2015. Consistent with Duffie, Gârleanu and Pedersen (2005)’s theory, we find that the less connected market participants’ interests are underrepresented, evident in the longer maturity segment, where lenders are more likely to be conservative passive investors, such as pension funds and insurance firms. The low price elasticity in this segment hinders these beneficial owners to fully capitalize on the additional income from securities lending, giving rise to important negative welfare implications.
In this study we investigate which economic ideas were prevalent in the macroprudential discourse post-crises in order to understand the availability of ideas for reform minded agents. We base our analysis on new findings in the field of ideational shifts and regulatory science, which posit that change-agents engage with new ideas pragmatically and strategically in their effort to have their economic ideas institutionalized. We argue that in these epistemic battles over new regulation, scientific backing by academia is the key resource determining the outcome. We show that the present reforms implemented internationally follow this pattern. In our analysis we contrast the entire discourse on systemic risk and macroprudential regulation with Borio’s initial 2003 proposal for a macroprudential framework. We find that mostly cross-sectional measures targeted towards increasing the resilience of the financial system rather than inter-temporal measures dampening the financial cycle have been implemented. We provide evidence for the lacking support of new macroprudential thinking within academia and argue that this is partially responsible for the lack of anti-cyclical macroprudential regulation. Most worryingly, the financial cycle is largely absent in the academic discourse and is only tacitly assumed instead of fully fledged out in technocratic discourses, pointing to the possibility that no anti-cyclical measures will be forthcoming.
This paper gives an account of the unmaking of Soviet workers at the Vernissage in Armenia. I argue that the unmaking of Soviet workers, first, is the irrelevance of Soviet workers as workers once they lost their jobs after the collapse of the Soviet Union and came to the Vernissage to trade. During the Soviet period, private trade was forbidden, and the Soviet government persecuted people who dared to engage in it. Consequently, many people grew up thinking of trade as a criminal activity that was non-productive and parasitic, as opposed to productive work that facilitated the modernization of the USSR. After the dissolution of the USSR, when trade was liberalized and many former Soviet workers were pushed into trade as they lost their jobs, it still retained its quality of not being “real” work, to borrow Roberman’s (2013) wording. Even 25 years after the dissolution of the USSR, former Soviet workers at the Vernissage still want to be identified with their former Soviet occupations and not with trade. However, now engaged in trade, former Soviet workers came up with a “new” way of establishing identity and hierarchy—through production. I describe this “new” way as “the identification game”; employing it, I demonstrate how former Soviet workers at the Vernissage identify and represent themselves as masters, whose work is productive and intellectual. In doing so, they single out resellers, people who resell the work of other masters, by implying that their work is parasitic and selfish. However, this “identification game” is reified only by the older generation of traders, former Soviet workers. The younger generation of traders at the Vernissage, which does not have any experience of being Soviet workers, is disengaged from it, thus undermining the Soviet view of trade as not “real” work and making it irrelevant in the postsocialist era. Thus, I contend that the unmaking of Soviet workers consists in, first, their irrelevance as workers in a postsocialist period, and second, the irrelevance of their ideas about trade as not “real” work. Furthermore, to support my depiction of a master who engages in “the identification game” and a younger-generation trader who is disengaged from it, I give two ethnographic portraits of traders at the Vernissage. I assert that the disengagement of a younger generation of traders at the Vernissage signals a change in the perception of trade as “real” work and runs parallel to the unmaking of Soviet workers.
In the context of Brexit, changes to the regulatory architecture of CCPs that empower the European securities markets regulator are under way to prevent the threat of a regulatory race to the bottom. However, this empowerment currently leaves the national supervision of common European rules within the EU intact. This policy letter argues that supervisory arbitrage is as much a threat within the EU as outside of it, wherefore a common supervision of CCP rules in the EU is called for. The paper traces the origins of the current set-up and criticizes the current regulatory proposal by the EU Commission as too cumbersome while discussing possible ways forward to achieve European supervision. In contrast to the current proposal of the Commission, we call for a unified supervision within ESMA, combined with a European fiscal backstop.