HEC Paris

About: HEC Paris is a education organization based out in Jouy-en-Josas, France. It is known for research contribution in the topics: Investment (macroeconomics) & Market liquidity. The organization has 584 authors who have published 2756 publications receiving 104467 citations. The organization is also known as: Ecole des Hautes Etudes Commerciales & HEC School of Management Paris.

Order Flow Composition and Trading Costs in Dynamic Limit Order Markets

Abstract: This paper provides a game theoretic model of price formation and order placement decisions in a dynamic limit order market. Investors can choose to post limit orders or to submit market orders. Limit orders result in better execution prices but face a risk of non-execution and a winner's curse problem. The execution probability of a limit order trader is endogenous and depends on the order placement decisions of the other traders. Solving for the equilibrium of this dynamic game, closed form solutions for the order placement strategies are obtained. Thus, testable implications for the cross-sectional behaviour of the mix between market and limit orders and trading costs in limit order markets are derived. It is also shown that the winner's curse problem has a negative impact on the allocative efficiency of these markets.

Experiments on Compound Risk in Relation to Simple Risk and to Ambiguity

Abstract: We conduct experiments measuring individual behavior under compound risk, simple risk, and ambiguity. We focus on 1 treatment of compound risks relative to simple risks and 2 the relationship between compound risk attitudes and ambiguity attitudes. We find that compound risks are valued differently than corresponding reduced simple risks. These differences measure compound risk attitudes. These attitudes display more aversion as the reduced probability of the winning event increases. Like Halevy [Halevy Y 2007 Ellsberg revisited: An experimental study. Econometrica 75:503-536], we find an association between compound risk reduction and ambiguity neutrality. However, in contrast to the almost perfect identification in Halevy's data, we find a substantially weaker relation in both directions. First, a majority of our ambiguity-neutral subjects fail to reduce compound risk. Second, almost a quarter of our subjects who reduce compound risk are nonneutral to ambiguity. All of the latter come from the more quantitatively sophisticated part of our subject pool. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1953 . This paper was accepted by Peter Wakker, decision analysis.

Consumer Attitude Metrics for Guiding Marketing Mix Decisions

Abstract: Marketing managers often use consumer attitude metrics such as awareness, consideration, and preference as performance indicators because they represent their brand's health and are readily connected to marketing activity. However, this does not mean that financially focused executives know how such metrics translate into sales performance, which would allow them to make beneficial marketing mix decisions. We propose four criteria---potential, responsiveness, stickiness, and sales conversion---that determine the connection between marketing actions, attitudinal metrics, and sales outcomes. We test our approach with a rich data set of four-weekly marketing actions, attitude metrics, and sales for several consumer brands in four categories over a seven-year period. The results quantify how marketing actions affect sales performance through their differential impact on attitudinal metrics, as captured by our proposed criteria. We find that marketing--attitude and attitude--sales relationships are predominantly stable over time but differ substantially across brands and product categories. We also establish that combining marketing and attitudinal metrics criteria improves the prediction of brand sales performance, often substantially so. Based on these insights, we provide specific recommendations on improving the marketing mix for different brands, and we validate them in a holdout sample. For managers and researchers alike, our criteria offer a verifiable explanation for differences in marketing elasticities and an actionable connection between marketing and financial performance metrics.

Giants at the Gate: Investment Returns and Diseconomies of Scale in Private Equity

Abstract: We document the wide dispersion of private equity investment returns and examine performance determinants using a newly constructed database of 7,500 investments worldwide. One in ten investments does not return any money, whereas one in four has an IRR above 50%. Quick flips are associated with some of the highest returns. Performance does not appear scalable: Investments held by private equity firms in periods with a high number of simultaneous investments underperform substantially. Results are consistent with the theoretical literature on organizational diseconomies linked to firm structure. Private equity firms’ actions do not appear to be mechanical or easily scalable.

Luxury and sustainability: a common future? The match depends on how consumers define luxury

Abstract: Sustainability issues have become a challenge for the luxury sector whose continuous success and growth - despite recessions, economic crises and increasing social inequality - appear as a paradox or even a provocation for some critics. Based on a program of multiple surveys involving actual luxury customers, we explain why customers are not concerned about sustainability considerations when they purchase a luxury product. But this apparent uninvolvement hides a more complex reality with high latent expectations towards luxury brands. Fundamentally, the perceived contradiction between luxury and sustainability depends on how luxury is defined by consumers: it is lower for consumers defining luxury in terms of exceptional quality. This is crucial for the defence of the legitimacy of the luxury sector as a whole, and of its most iconic brands for the future.