HKEJ Column

We propose that investor beliefs frequently “cross” in the sense that an investor may like company A but dislike company B, whereas another investor may like company B but dislike company A. Such belief-crossing makes it almost impossible to construct a portfolio that is composed solely of every investor’s most favored companies. This causes the level of excitement for portfolios to be generally lower than the levels of excitement that individual companies generate among their most fervent supporters. Coupled with short-sale constraints, wherein prices are set by the most optimistic investors, this causes portfolios to trade at discounts. Utilizing several settings whereby the value of a portfolio and the values of the underlying components can be evaluated separately (e.g., closed-end funds), we present evidence supporting our proposition that, in financial markets, the “whole” is often less than the “sum of its parts.”

We evaluate the impact of the African slave trade between 1400 and 1900 on modern household finance. Exploiting cross-country and cross-ethnic group differences in the intensity with which people were enslaved and exported from Africa, we find that slave exports during the 1400–1900 period are negatively associated with current measures of household (a) access to financial services, (b) access to credit, (c) use of mobile finance, and (d) trust in financial institutions, suggesting that the slave trade has had an enduring, deleterious effect on household finance.

Estimating the hazard function of customer patience time has become a necessary component of effective operational planning such as workforce staffing and scheduling in call centers. When customers get served, their patience times are right-censored. In addition, the exact event times in call centers are sometimes unobserved and naturally binned into time intervals, due to the design of data collection systems. We develop a TunT (Transform-unTransform) estimator that turns the difficult problem of nonparametric hazard function estimation into a regression problem on binned and right-censored data. Our approach starts with binning event times and transforming event count data with a mean-matching transformation, which enables a simpler characterization of the heteroscedastic variance function. A nonparametric regression technique is then applied to the transformed data. Finally, the estimated regression function is back-transformed to yield an estimator for the original hazard function. The proposed estimation procedure is illustrated using call center data to reveal interesting customer patience behavior, and health insurance plan trial data to compare the effect between treatment and control groups. The numerical study shows that our approach yields more accurate estimates and better staffing decisions than existing methods.

Using a comprehensive sample of credit card data from a leading Chinese bank, we show that government bureaucrats receive 16% higher credit lines than non-bureaucrats with similar income and demographics, but their accounts experience a significantly higher likelihood of delinquency and debt forgiveness. Regions associated with greater credit provision to bureaucrats open more branches and receive more deposits from the local government. After staggered corruption crackdowns of provincial-level political officials, the new credit cards originated to bureaucrats in exposed regions do not enjoy a credit line premium, and bureaucrats’ delinquency and reinstatement rates are similar to those of non-bureaucrats.

We consider a firm consisting of two divisions, one responsible for designing and manufacturing new products and the other responsible for remanufacturing operations. The firm will sell these new and remanufactured products either directly to the consumer (direct selling) or through an independent retailer (indirect selling). Our study demonstrates that a firm’s organizational structure can affect its marketing decisions. Specifically, a decentralized firm with separate manufacturing and remanufacturing divisions can benefit from indirect selling with higher firm profit, supply chain profit, and total consumer demand than direct selling. Moreover, this structure also induces a remanufacturable product design. In contrast, a centralized firm in which the manufacturing and remanufacturing divisions are consolidated is intuitively better off by choosing direct selling than indirect selling. Furthermore, we show that, surprisingly, when the focal firm sells through an independent retailer, a decentralized internal structure can result in higher supply chain profit than a centralized internal structure. We further investigate the case of dual dedicated channels and conclude that, while direct selling of remanufactured products and indirect selling of new products can better induce a remanufacturable product design and higher supply chain profit, it is not in the best interest of the firm in terms of total sales and firm profit.

We analyze optimal auction mechanisms when bidders base costly entry decisions on their valuations, and bidders pay with a fixed royalty rate plus cash. With sufficient valuation uncertainty relative to entry costs, the optimal mechanism features asymmetry so that bidders enter with strictly positive but different (ex-ante) probabilities. When bidders are ex-ante identical, higher royalty rates—which tie payments more closely to bidder valuations—increase the optimal degree of asymmetry in auction design, further raising revenues. When bidders differ ex-ante in entry costs, the seller favors the low cost entrant; whereas when bidders have different valuation distributions, the seller favors the weaker bidder if entry costs are low, but not if they are high. Higher royalty rates cause the seller to favor the weaker bidder by less, and the strong bidder by more.

Using a large panel of more than 140,000 state-owned enterprises (SOEs), this study examines SOEs’ investment behavior surrounding 82 national elections in 25 European countries between 2001 and 2015. We find that SOEs increase their corporate investment by about 29% of the sample average during national election years. This effect is more pronounced in fixed timing and closely contested elections. The effect is also stronger in countries with low institutional quality, more centralized political systems, and state-controlled banking systems. In contrast, we find the matched non-SOEs significantly decrease their corporate investment during national election years.

Given the positive bias toward attractive people in society, online sellers are justifiably apprehensive about perceptions of their profile pictures. Although the existing literature emphasizes the “beauty premium” and the “ugliness penalty,” the current studies of seller profile pictures on customer-to-customer e-commerce platforms find a U-shaped relationship between facial attractiveness and product sales (i.e., both beauty and ugliness premiums and, thus, a “plainness penalty”). By analyzing two large data sets, the authors find that both attractive and unattractive people sell significantly more than plain-looking people. Two online experiments reveal that attractive sellers enjoy greater source credibility due to perceived sociability and competence, whereas unattractive sellers are considered more believable on the basis of their perceived competence. While a beauty premium is apparent for appearance-relevant products, an ugliness premium is more pronounced for expertise-relevant products and for female consumers evaluating male sellers. These findings highlight the influence of facial appearance as a key vehicle for impression formation in online platforms and its complex effects in e-commerce and marketing.

We propose a functional censored quantile regression model to describe the time-varying relationship between time-to-event outcomes and corresponding functional covariates. The time-varying effect is modeled as an unspecified function that is approximated via B-splines. A generalized approximate cross-validation method is developed to select the number of knots by minimizing the expected loss. We establish asymptotic properties of the method and the knot selection procedure. Furthermore, we conduct extensive simulation studies to evaluate the finite sample performance of our method. Finally, we analyze the functional relationship between ambulatory blood pressure trajectories and clinical outcome in stroke patients. The results reinforce the importance of the morning blood pressure surge phenomenon, whose effect has caught attention but remains controversial in the medical literature. Supplementary materials for this article are available online.