12 March 2013

Which News Moves Stock Prices?

In order to study the relationship between stock prices and news, Jacob Boudoukh, Ronen Feldman, Shimon Kogan, and Matthew Richardson classify news articles by topic (such as analyst recommendations, financial information, acquisitions and mergers, and so on) and tone, then compare the market reaction on days with "no-news" versus days with what they term "unidentified news" and "identified news." They show that stock-level volatility is similar on no-news days and unidentified news days, consistent with the idea that the intensity and importance of information arrival is the same across those days. However, on "identified news days" the volatility of stock prices is more than double what it is on other days. They estimate that identified news days are approximately 30 percent more likely to be associated with extreme returns (defined by the bottom and top 10 percent of the return distribution) and that unidentified and no-news days are slightly more likely to be associated with moderate returns (in the middle 30-70 percent range of the returns distribution).

11 March 2013

The Transmission of Democracy from Village to Nation-State

Paola Giuliano and Nathan Nunn find that a tradition of local-level democracy – that is, having the local leader chosen through consensus rather than other methods, such as hereditary appointment – is associated with more democratic national institutions today. They surmise that a tradition of village-level democracy may affect people’s attitudes about the appropriateness of democratic institutions, and in turn affect the stability of such institutions at the national level. Finally, they show that countries with a past experience of local democracy have a stronger rule of law, less corruption, and higher per capita income today.

8 March 2013

Winning the War on Poverty

The poverty rate, when measured by consumption rather than income and after adjusting price indexes for bias, declined by more than 25 percentage points between 1960 and 2010, according to new research by Bruce Meyer and James Sullivan. Furthermore, nearly 9 percentage points of that decline has occurred since 1980. They find that the poverty rate for single parent families and the elderly has fallen more than the rate for married parent families during this 50-year period. Their analysis suggests that changes in tax policy explain a substantial part of this decline in poverty, and that Social Security has been important, but other transfer programs have not.

7 March 2013

Why is the U.S. Falling Behind in Female Labor Supply?

Between 1990 and 2010, the female labor participation rate in the United States fell from sixth to seventeenth among 22 OECD countries. Fran Blau and Larry Kahn find that nearly 30 percent of that relative decrease can be explained by the expansion of “family-friendly” policies in other OECD countries, including parental leave and part-time work entitlements, which encourage women to work part time or in less demanding occupations. They find that U.S. women are more likely than women in other countries to have full-time jobs and to work as managers or professionals.

6 March 2013

Housing Prices and Environmental Health Risks

Janet Currie, Lucas Davis, Michael Greenstone, and Reed Walker study what happens to housing prices when industrial plants emitting toxic pollutants either open or close. They examine the experience around nearly 1600 plants and find that housing values within one mile of those plants decrease by 1.5 percent when the plants open and increase by 1.5 percent when the plants close. They estimate that this represents an aggregate loss in housing values per plant of about $1.5 million.

5 March 2013

History, Gravity, and International Finance

Past holdings of a country’s bonds may be an indirect indicator of the fixed costs of entering the market for international investments, because investors have sunk the costs of acquiring information and other costs related to that class of bonds. Livia Chițu, Barry Eichengreen, and Arnaud Mehl find that U.S. holdings of the bonds of a country in 1943 significantly influence U.S. holdings of foreign bonds of that country in 2010, even after controlling for other standard determinants. As much as 15 percent of the worldwide allocation of U.S. investors’ holdings today can be explained by holdings seven decades ago. Moreover, this “history effect” is twice as large for foreign-currency-denominated bonds as for dollar bonds: as much as 30 percent of the worldwide allocation of U.S. investors’ holdings of non-dollar bonds today can be explained by the pattern of such holdings seven decades ago.

4 March 2013

Are Immigrants the Best and Brightest U.S. Engineers?

Analyzing data from the American Community Surveys of 2009 and 2010, Jennifer Hunt shows that whether immigrants appear to be the "best and brightest" depends upon whether the sample -- in her study, engineers -- is defined based on occupation or education. She finds that among those working in engineering occupations, immigrants have more education and earn almost 10 percent more per hour than natives on average. However, among holders of engineering bachelor's degrees, immigrants earn nearly 10 percent less than natives on average, despite an education advantage. She observes that immigrants tend to work in occupations not commensurate with their education, they are not likely to be promoted out of technical occupations into management, and they are handicapped professionally by their imperfect English and their youth.

1 March 2013

Health Information Technology and Patient Outcomes

Jeffery McCullough, Stephen Parente, and Robert Town study the relationship between hospitals' adoption of information technology (IT) and patient outcomes. They examine the discharge records of Medicare patients who were admitted for one of four high mortality conditions: acute myocardial infarction, congestive heart failure, coronary atherosclerosis, and pneumonia. Their sample covers several million patients between 2002 and 2007 and coincides with a period of high adoption of hospital IT. They find that adopting health IT reduces mortality for the most complex patients, those whose diagnoses require cross-specialty care coordination and the management of extensive clinical information.

28 February 2013

Informed Trading and Expected Returns

Analyzing ownership data from the Shanghai Stock Exchange, James Choi, Li Jin, and Hongjun Yan find that institutions have a strong information advantage over individual investors. They then show that the average absolute weekly change in institutional ownership during the past year (how aggressively institutions trade a stock) predicts information asymmetry in that stock in the future. Sorting stocks according to this information asymmetry predictor, they find that the top quintile outperforms the bottom quintile in the next month by an amount that corresponds to a 10.8 percent annualized return. These findings suggest that information asymmetry raises the cost of capital.

27 February 2013

How Experience and Physician Skill Affect Patient Outcomes

Analyzing data from non-federal acute care hospitals in Florida and New York State over the period 1992 to 2010, Andrew Epstein, Sean Nicholson, and David Asch ask how obstetricians' experience affects their performance and the demand for their services. They find that while on average the maternal complication rates for an obstetrician's patients decline with the number of years that the doctor has been practicing, the obstetrician's initial skill -- as measured by the maternal complication rate in their first year of practice -- explains most of the variation in performance even after many years.
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