National Bureau of Economic Research

About: National Bureau of Economic Research is a nonprofit organization based out in Cambridge, Massachusetts, United States. It is known for research contribution in the topics: Monetary policy & Population. The organization has 2626 authors who have published 34177 publications receiving 2818124 citations. The organization is also known as: NBER & The National Bureau of Economic Research.

Non-Parametric Risk Management and Implied Risk Aversion

Abstract: Typical value-at-risk (VaR) calculations involve the probabilities of extreme dollar losses, based on the statistical distributions of market prices. Such quantities do not account for the fact that the same dollar loss can have two very different economic valuations, depending on business conditions. We propose a nonparametric VaR measure that incorporates economic valuation according to the state-price density associated with the underlying price processes. The state-price density yields VaR values that are adjusted for risk aversion, time preferences, and other variations in economic valuation. In the context of a representative agent equilibrium model, we construct an estimator of the risk-aversion coefficient that is implied by the joint observations on the cross-section of option prices and time-series of underlying asset values.

Common Errors: How to (and Not to) Control for Unobserved Heterogeneity

Abstract: Controlling for unobserved heterogeneity (or “common errors”), such as industry-specific shocks, is a fundamental challenge in empirical research. This paper discusses the limitations of two approaches widely used in corporate finance and asset pricing research: demeaning the dependent variable with respect to the group (e.g., “industry-adjusting”) and adding the mean of the group’s dependent variable as a control. We show that these methods produce inconsistent estimates and can distort inference. In contrast, the fixed effects estimator is consistent and should be used instead. We also explain how to estimate the fixed effects model when traditional methods are computationally infeasible.Additional programming advice can be found on our websites.

The Regulation of Entry

Abstract: We present new data on the regulation of entry of start-up firms in 75 countries. The data set contains information on the number of procedures, official time, and official cost that a start-up must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have fewer entry regulations. The evidence is inconsistent with Pigouvian (helping hand) theories of benevolent regulation, but support the (grabbing hand) view that entry regulation benefits politicians and bureaucrats.

Does Corporate Diversification Destroy Value

Abstract: We analyze several hundred firms that expand via acquisition and/or increase their reported number of business segments. The average combined market reaction to acquisition announcements is positive but, according to the Berger and Ofek (1995) method for valuing conglomerates, the excess values of the acquiring firms decline after the diversifying event. For our sample, half or more of the reduction in excess value occurs because the firms acquire already-discounted business units, and not because combining firms destroys value. We also show that firms that increase their number of business segments due to pure reporting changes do not exhibit reductions in excess value. Our results suggest that the standard assumption that conglomerate divisions can be benchmarked to typical stand-alone firms should be carefully reconsidered.