Maurice D. Levi

Winter Blues: A SAD Stock Market Cycle

This paper investigates the role of seasonal affective disorder (SAD) in the seasonal time-variation of stock market returns. SAD is an extensively documented medical condition whereby the shortness of the days in fall and winter leads to depression for many people. Experimental research in psychology and economics indicates that depression, in turn, causes heightened risk aversion. Building on these links between the length of day, depression, and risk aversion, we provide international evidence that stock market returns vary seasonally with the length of the day, a result we call the SAD effect. Using data from numerous stock exchanges and controlling for well-known market seasonals as well as other environmental factors, stock returns are shown to be significantly related to the amount of daylight through the fall and winter. Patterns at different latitudes and in both hemispheres provide compelling evidence of a link between seasonal depression and seasonal variation in stock returns: Higher latitude markets show more pronounced SAD effects and results in the Southern Hemisphere are six months out of phase, as are the seasons. Overall, the economic magnitude of the SAD effect is large.

Director Gender and Mergers and Acquisitions

Does director gender influence CEO empire building? Does it affect the bid premium paid for target firms? Less overconfident female directors less overestimate merger gains. As a result, firms with female directors are less likely to make acquisitions and if they do, pay lower bid premia. Using acquisition bids by S&P 1500 companies during 1997–2009 we find that each additional female director is associated with 7.6% fewer bids, and each additional female director on a bidder board reduces the bid premium paid by 15.4%. Our findings support the notion that female directors help create shareholder value through their influence on acquisition decisions. We also discuss other possible interpretations of our findings.

Creating a Good Atmosphere: Minimum Participation for Tackling the 'Greenhouse Effect.'

This paper explores the implications of setting a minimum ratification level on an international agreement to tackle the greenhouse effect. Several aspects of the ratification level are considered, including the threshold number of signatories required to affect agreement, the potential number of participating countries, and the distribution of benefits from taking action. The likelihood of reaching agreement on a ratification level is also considered. It is shown, for example, that the optimal ratification level is reasonably robust to variations in circumstances and that the prospects for effecting a treaty may be improved by there being a large number of countries. Copyright 1993 by The London School of Economics and Political Science.

The structure of international banking

Abstract This paper investigates the factors that determine the number and form of foreign banking operations from 60 foreign countries in the United States. Our equilibrium model of three banking forms (representative offices, agencies and branches) and three explanatory variables (export activity, merchant banking activity, and capital market development) explains more than 74 per cent of the variation in numbers of offices across the 60 different foreign countries. In addition, we identify the equilibrium model of competition among the types of operations that is most consistent with the empirical results. (JEL F33).

Taxation and "Abnormal" International Capital Flows

If the choice of domestic versus foreign money and capital market instruments was on the basis of covered yields, funds would universally flow in one direction, from the smallest incentive, to the instruments of highest yields. This paper shows the consequences of different rates of taxation on interest and on exchange gains, the two components of foreign yields. By reference to the U.S.-Canadian situation it is shown how we might observe taxpayers in both countries simultaneously buying securities of the other, or simultaneously buying their own domestic securities. It is also shown how we might find taxpayers of both countries buying the securities with the lower pretax yields.

Deal or No Deal: Hormones and the Mergers and Acquisitions Game

Young male CEOs appear to be combative: they are 4% more likely to be acquisitive and, having initiated an acquisition, they are over 20% more likely to withdraw an offer. Furthermore, a young target male CEO is 2% more likely to force a bidder to resort to a tender offer. We argue that this combative nature is a result of testosterone levels that are higher in young males. Testosterone, a hormone associated with male dominance seeking, has been shown to influence prospects for a cooperative outcome of the ultimatum game. Specifically, high-testosterone responders tend to reject low offers even though this is against their interest. It has been argued that this is consistent with a low offer being seen as dominance seeking. The acts of attempting or resisting an acquisition can be viewed as striving to achieve dominance. We argue that the evidence reported in this paper is consistent with the presence of a significant hormone effect in mergers and acquisitions.

The Location of International Financial Activity: An Interregional Analysis

GOLDBERG M. A., HELSLEY R. W. and LEVI M. D. (1989) The location of international financial activity: an interregional analysis, Reg. Studies 23, 1–7. This paper examines the determinants of the spatial distribution of financial activity. The determinants of the sizes of the financial services sector are estimated using data for a sample of US states. Although our analysis is limited by the availability of data, the results are strong and clear. The level of international financial activity is positively and significantly related to per capita income, the level of imports, and the number of corporate headquarters. The results indicate that international trade is intensive in its use of financial services and that financial services tends to be exported along with goods. GOLDBERG M. A., HELSLEY R. W. et LEVI M. D. (1989) La localisation des operations financieres internationales: une analyse interregionale, Reg. Studies 23, 1–7. Cet article examine les determinants de la distribution geographique des opera...

Sticky Prices: The Impact of Regulation

This paper finds that approximately one-third of the items in the CPI are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions. Consequently, regulation is a possible partial explanation of sticky prices in the overall rate of inflation, and delayed response to changes in the money supply. A survey is used to decompose the CPI into freely determined and regulated sub-components. Evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely determined sector, thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy.

Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity

We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury returns across the seasons: risky returns are higher and risk-free returns are lower or stable in fall/winter, and they reverse in spring/summer. Further, risky returns vary more than risk-free returns. A novel finding is that both EIS and risk aversion must vary seasonally to match observed returns. Further, the degree of necessary seasonal change in EIS is small.

Opposing Seasonalities in Treasury Versus Equity Returns

We demonstrate a novel and striking annual cycle in the US Treasury market, with a variation of over 80 basis points from peak to trough in monthly returns. The Treasury return seasonal pattern is opposite to that evident in equity returns, and the opposing patterns are not due to unconditional negative correlation between Treasury and stock returns. We show that the seasonal Treasury and equity return patterns are unlikely to arise from macroeconomic seasonalities, seasonal variation in risk, cross-hedging between equity and Treasury markets, investor sentiment, seasonalities in the Treasury market auction schedule, seasonalities in the Treasury debt supply, seasonalities in the FOMC cycle, or peculiarities of the sample period considered. The seasonal cycles become more pronounced during periods of high market volatility, consistent with the notion that the seasonal cycles are a result of time-varying risk aversion among market participants. The seasonal patterns in equity and Treasury returns are coincident with the incidence of seasonal depression observed clinically in North American populations, and depression has been shown to be associated with reduced risk tolerance. The White (2000) reality test confirms that the correlation between returns and the clinical incidence of seasonal depression cannot be easily dismissed as the simple result of data snooping. Our findings are all the more remarkable given that it is expert traders who dominate the Treasury market.