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.

Ozone ensemble forecast with machine learning algorithms

Abstract: [1] We apply machine learning algorithms to perform sequential aggregation of ozone forecasts. The latter rely on a multimodel ensemble built for ozone forecasting with the modeling system Polyphemus. The ensemble simulations are obtained by changes in the physical parameterizations, the numerical schemes, and the input data to the models. The simulations are carried out for summer 2001 over western Europe in order to forecast ozone daily peaks and ozone hourly concentrations. On the basis of past observations and past model forecasts, the learning algorithms produce a weight for each model. A convex or linear combination of the model forecasts is then formed with these weights. This process is repeated for each round of forecasting and is therefore called sequential aggregation. The aggregated forecasts demonstrate good results; for instance, they always show better performance than the best model in the ensemble and they even compete against the best constant linear combination. In addition, the machine learning algorithms come with theoretical guarantees with respect to their performance, that hold for all possible sequences of observations, even nonstochastic ones. Our study also demonstrates the robustness of the methods. We therefore conclude that these aggregation methods are very relevant for operational forecasts.

Optimal Dissent in Organizations

Abstract: We model an organization as a two-agent hierarchy: an informed Decision Maker in charge of selecting projects and a (possibly) uninformed Implementer in charge of their execution. Both have intrinsic preferences over projects. This paper models the costs and benefits of divergence between their preferences, that is, dissent within the organization. Dissent is useful to (1) foster the use of objective (and sometimes private) information in decision making and (2) give credibility to the Decision Maker's choices. However, dissent comes at the cost of hurting the Implementer's intrinsic motivation, thereby impairing organizational efficiency. We show that dissent can be optimal, in particular, when information is useful and uncertainty is high. Moreover, dissent remains an optimal organizational form even when Implementers can choose their employer or when Decision Makers have real authority over hiring decisions.

The Real Effects of Lending Relationships on Innovative Firms and Inventor Mobility

Abstract: We study how relationship lending determines the financing of innovation. Exploiting a negative shock to relationships, we show that it reduces the number of innovative firms, especially those that depend more on relationship lending such as small, opaque firms. This credit supply shock leads to reallocation of inventors whereby young and productive inventors leave small firms and move out of geographical areas where lending relationships are hurt. Overall, our results show that credit markets affect both the level of innovation activity and the distribution of innovative human capital across the economy.Received April 11, 2013; editorial decision May 25, 2016 by Editor Andrew Karolyi.

Financial Contracting with Optimistic Entrepreneurs: Theory and Evidence

Abstract: This paper looks at the effects of entrepreneurial optimism on financial contracting and corporate performance. Optimism may increase effort, but is bad for adaptation decisions as the entrepreneur underweights negative information. The first-best contract with an optimist uses contigencies for two distinct purposes: (1) bridging the gap in beliefs by letting the entrepreneur take a bet on his project's success, and (2) imposing adaptation decisions in bad states. When the contract space is restricted to debt, there may exist a separating equilibrium where optimists self-select in short-term debt and realists in long-term debt. We confront our theory to a large dataset of entrepreneurs. First, we find that differences in beliefs may be (partly) explained by usual determinants put forward in psychology and management literature. Second, in line with the two main predictions of our model, we find that (1) optimists tend to borrow more short term and (2) those optimists that borrow more short term perform better. Last, we find that firms run by optimists tend to grow less, die sooner and be less profitable, which we view as a confirmation that our measure of optimism does not proxy high risk - high return projects.

Is the Potential for International Diversification Disappearing? A Dynamic Copula Approach

Abstract: International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate nonnormality, and asymmetries in large cross-sections. We find that copula correlations have increased markedly in both developed markets (DMs) and emerging markets (EMs), but they are much lower for EMs than for DMs. Tail dependence has also increased but its level is still relatively low for EMs. We propose new measures of dynamic diversification benefits that take into account higher order moments and nonlinear dependence. The benefits from international diversification have reduced over time, drastically so for DMs. EMs still offer significant diversification benefits, especially during large market downturns.