Results for “high frequency” 121 found
Who pays the highest prices?
I do, it seems. Don’t tell my suppliers, but I am a big fan of zero price search. Mark Aguiar and Erik Hurst write:
Using scanner data and time diaries, we document how households substitute time for money through shopping and home production. We find evidence that there is substantial heterogeneity in prices paid across households for identical consumption goods in the same metro area at any given point in time. For identical goods, prices paid are highest for middleaged, rich, and large households, consistent with the hypothesis that shopping intensity is low when the cost of time is high. The data suggest that a doubling of shopping frequency lowers the price paid for a given good by approximately 10 percent. [TC: is that all????] From this elasticity and observed shopping intensity, we impute the shopper’s opportunity cost of time, which peaks in middle age at a level roughly 40 percent higher than that of retirees [emphasis added]. Using this measure of the price of time and observed time spent in home production, we estimate the parameters of a home production function. We find an elasticity of substitution between time and market goods in home production of close to 2. Finally, we use the estimated elasticities for shopping and home production to calibrate an augmented lifecycle consumption model. The augmented model predicts the observed empirical patterns quite well. Taken together, our results highlight the danger of interpreting lifecycle expenditure without acknowledging the changing demands on time and the available margins of substituting time for money.
Here is the paper, and thanks to Bruce Bartlett for the pointer. We also learn that people with children pay higher prices (presumably they have less time to search) and people in their forties with children pay the highest prices of all, six to eight percent more than people in their twenties or sixties.
I also take these results to imply that poor households, which shop more frequently and pay lower prices, are better off in material terms than CPI-based measures of real income will imply. That being said, they also have less time. Fans of the "happiness literature," which suggests more money above a certain level doesn’t make you better off, should favor less search. After all, we are told that people enjoy time spent with friends more than either money or sex. So does this view (not mine) suggest that we shut down discount outlets and induce more consumption of time? Are single price monopolies better than price discrimination? Is Marshall’s the true enemy of the middle class?
Social Media as a Bank Run Catalyst
Social media fueled a bank run on Silicon Valley Bank (SVB), and the effects were felt broadly in the U.S. banking industry. We employ comprehensive Twitter data to show that preexisting exposure to social media predicts bank stock market losses in the run period even after controlling for bank characteristics related to run risk (i.e., mark-to-market losses and uninsured deposits). Moreover, we show that social media amplifies these bank run risk factors. During the run period, we find the intensity of Twitter conversation about a bank predicts stock market losses at the hourly frequency. This effect is stronger for banks with bank run risk factors. At even higher frequency, tweets in the run period with negative sentiment translate into immediate stock market losses. These high frequency effects are stronger when tweets are authored by members of the Twitter startup community (who are likely depositors) and contain keywords related to contagion. These results are consistent with depositors using Twitter to communicate in real time during the bank run.
That is from a new paper by J. Anthony Cookson, et.al. Via the excellent Kevin Lewis.
Poor New Jersey the benefits of self-service gasoline
Most of the world’s population lives in countries that ban the self-service sale of gasoline. Causal effects of this regulation can hardly be assessed in these countries due to a lack of policy changes, but a recent quasi-experiment in the state of Oregon allows us to analyze the impact of the ban. From 1992 to 2017, the state of Oregon was one of two US states that banned self-service at gasoline stations. Oregon adjusted regulations at the start of 2018 to allow self-service at gasoline stations in counties with populations below 40,000 individuals. I examine the repeal of this self-service ban and its effects on gasoline prices. I apply a difference-in-differences design using high frequency data of gasoline prices and find that repealing the self-service ban reduced gasoline prices by 4.4 cents per gallon in affected Oregon counties. This effect represents approximately $90 in expected annual savings for a household with three licensed drivers. The results are statistically significant in all specifications and are essential to the policy debate on whether to keep self-service bans in U.S. states and countries with the same regulation.
That is from Vitor Melo at Clemson University, via the excellent Kevin Lewis.
The Effect of Adult Entertainment Establishments on Sex Crime
This paper studies how the presence of adult entertainment establishments affects the incidence of sex crimes, including sexual abuse and rape. We build a high frequency daily and weekly panel that combines the exact location of not-self-reported sex crimes with the day of opening and exact location of adult entertainment establishments in New York City. We find that these businesses decrease sex crime by 13% per police precinct one week after the opening, and have no effect on other types of crimes. The results imply that the reduction is mostly driven by potential sex offenders frequenting these establishments rather than committing crimes. We also rule out the possibility that other mechanisms are driving our results, such as an increase in the number of police officers, a reduction in the number of street prostitutes and a possible reduction in the number of potential victims in areas where these businesses opened. The effects are robust to using alternative measures of sex crimes.
That is from a new paper by Ciacci and Sviatschi, via Jennifer Doleac. We find this clash of values repeatedly in public policy. Do you wish to side with the interests of the actual victims — the people who might end up abused and raped? — or do you wish to side with landlords and homeowners who might find their property values reduced by sex establishments? “Export the bad stuff!”, this is a NIMBy dilemma yet again.
Larry Summers, Right Again
No surprise but in can case you were wondering, retail investors trade mostly on noise. A little bit more surprising is that the effect is to make markets less liquid since some models suggest that noise traders make markets more liquid and accurate by bringing in the sharks.
Contrasting with recent evidence that retail traders are informed, we find that Robinhood ownership changes are unrelated with future returns, suggesting that zero-commission investors behave as noise traders. We exploit Robinhood platform outages to identify the causal effects of commission-free traders on financial markets. Exogenous negative shocks to Robinhood participation are associated with increased market liquidity and lower return volatility among stocks favored by Robinhood investors, as proxied by WallStreetBets mentions. Platform outages are also associated with reduced high frequency trader (HFT) activity, indicative of payments for order flow. However, outages have the strongest effect on stocks neglected by HFTs, suggesting that zero–commission traders have direct negative effects on market quality.
Are humans constantly but subconsciously smelling themselves?
Here is the opening of a lengthy abstract of a new paper by Ofer Perl, et.al., and it may help explain why it is so hard to avoid touching your face:
All primates, including humans, engage in self-face-touching at very high frequency. The functional purpose or antecedents of this behaviour remain unclear. In this hybrid review, we put forth the hypothesis that self-face-touching subserves self-smelling. We first review data implying that humans touch their faces at very high frequency. We then detail evidence from the one study that implicated an olfactory origin for this behaviour: This evidence consists of significantly increased nasal inhalation concurrent with self-face-touching, and predictable increases or decreases in self-face-touching as a function of subliminal odourant tainting. Although we speculate that self-smelling through self-face-touching is largely an unconscious act, we note that in addition, humans also consciously smell themselves at high frequency.
File under Questions that are Rarely Asked, via Michelle Dawson.
Maybe We Won’t All Die in a Pandemic
The high frequency of modern travel has led to concerns about a devastating pandemic since a lethal pathogen strain could spread worldwide quickly. Many historical pandemics have arisen following pathogen evolution to a more virulent form. However, some pathogen strains invoke immune responses that provide partial cross-immunity against infection with related strains. Here, we consider a mathematical model of successive outbreaks of two strains: a low virulence strain outbreak followed by a high virulence strain outbreak. Under these circumstances, we investigate the impacts of varying travel rates and cross-immunity on the probability that a major epidemic of the high virulence strain occurs, and the size of that outbreak. Frequent travel between subpopulations can lead to widespread immunity to the high virulence strain, driven by exposure to the low virulence strain. As a result, major epidemics of the high virulence strain are less likely, and can potentially be smaller, with more connected subpopulations. Cross-immunity may be a factor contributing to the absence of a global pandemic as severe as the 1918 influenza pandemic in the century since.
From a new paper in bioRxiv, the biological preprint service analagous to arXiv.
Hat tip: Paul Kedrosky.
The Uber Pay Gap
Using data on over one million Uber drivers and millions of trips, Cody Cook, Rebecca Diamond, Jonathan Hall, John A. List, and Paul Oyer show that female Uber drivers earn 7% less than male drivers. What makes this paper new, however, is that UBER’s extensive data lets the authors understand in great detail why the pay gap exists. It’s not discrimination:
Uber uses a gender-blind algorithm and drivers earn according to a transparent formula based on the time and distance of trips. There are no negotiated pay rates or convex returns to long hours worked, factors that have been shown to open a gender earnings gap in other settings. Our research also finds that both average rider ratings of drivers and cancellation rates are roughly equivalent between genders and we find no evidence that outright discrimination, either by the app or by riders, is driving the gender earnings gap.
The authors find that three factors explain the gap; driving speed, experience, and choices about where to drive.
First, driving speed alone can explain nearly half of the gender pay gap. Second, over a third of the gap
can be explained by returns to experience, a factor which is often almost impossible to evaluate
in other contexts that lack high frequency data on pay, labor supply, and output. The remaining
∼20% of the gender pay gap can be explained by choices over where to drive.
Male Uber drivers, like other males, drive a bit faster than female drivers, about 2.2% faster after controlling for experience and location. Since Uber pays by time as well as by distance the returns to speed are not very high and the difference in speed is small but overall this results in an increase in pay for males of about 50 cents an hour.
Drivers learn by doing and more men than women have driven for Uber for years:
A driver with more than 2,500 lifetime trips completed earns 14% more per hour than a driver who
has completed fewer than 100 trips in her time on the platform, in part because she learn where
to drive, when to drive, and how to strategically cancel and accept trips. Male drivers accumulate
more experience than women by driving more each week and being less likely to stop driving with
Uber.
Overall, female and male Uber drivers behave remarkably similarly but small differences aggregated over large samples produce a small but systematic gender gap in wages of about 7%. The gap, however, is an artifact, a social construct that has no implications for “social justice,” drivers are treated equally.
The author’s conclude:
Overall, our results suggest that, even in the gender-blind, transactional, flexible environment
of the gig economy, gender-based preferences (especially the value of time not spent at paid work
and, for drivers, preferences for driving speed) can open gender earnings gaps. The preference
differences that contribute to pay differences in professional markets for lawyers and MBA’s also
lead to earnings gaps for drivers on Uber, suggesting they are pervasive across the skill distribution
and whether in the traditional or gig workplace.
Do stock markets respond to political prediction markets?
Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections . We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during Election Day. Analyzing high frequency financial fluctuations following the release of flawed exit poll data on Election Day 2004, and then during the vote count, we find that markets anticipated higher equity prices, interest rates and oil prices and a stronger dollar under a Bush presidency than under Kerry. A similar Republican-Democrat differential was also observed for the 2000 Bush-Gore contest. Prediction market based analyses of all Presidential elections since 1880 also reveal a similar pattern of partisan impacts, suggesting that electing a Republican President raises equity valuations by 2-3 percent, and that since Reagan, Republican Presidents have tended to raise bond yields.
*The Midas Paradox*
That is the forthcoming book by Scott Sumner, and the subtitle is Financial Markets, Government Policy Shocks, and the Great Depression. Here is one of Scott’s brief capsule descriptions of the book:
I will show that if we take the gold market seriously we can explain much more about the Great Depression than anyone had thought possible. Three types of gold market shocks generated much of the variation shown in Table 1.1: changes in central bank demand for gold, private sector gold hoarding, and changes in the price of gold. The remaining output shocks are linked to five wage shocks that resulted from the New Deal. This is the first study to provide a comprehensive and detailed look at all high frequency macro shocks during the Great Depression.
I would stress that Scott devotes far more attention to asset price reactions than do many other studies of economic history; that is perhaps his main methodological innovation, in addition to the economics.
Scott also insists — correctly in my view — that the artificially engineered real wage increases of the New Deal were a true disaster. This point is underemphasized in most competing accounts, or perhaps even actively denied by many Keynesians. Yet the evidence here is overwhelming.
This is a very good book, one of the best on the economics of the Great Depression ever written.
My conversation with Cliff Asness
Here is the full transcript, video, and podcast of the chat. Cliff was great from beginning to end. The first thirty minutes or so were an overview of “momentum” and “value” trading strategies, and to what extent they violate an efficient markets hypothesis. Much of the rest covered:
…disagreeing with Eugene Fama, Marvel vs. DC, the inscrutability of risk, high frequency trading, the economics of Ayn Rand, bubble logic, and why never to share a gym with Cirque du Soleil.
Here is one excerpt:
COWEN: I think of you as doing a kind of metaphysics of human nature. On one side, there’s behavioral economics. They put people in the lab, one-off situations, untrained people. But here it’s repeated data, it’s over long periods of time, it’s out of sample. There’s real money on the line, and this still seems to work.
When you back out, what’s the actual vision of human nature? What’s the underlying human imperfection that allows it to be the case, that trading on momentum across say a 3 to 12 month time window, sorry, investing on momentum, will work? What’s with us as people? What’s the core human imperfection?
ASNESS: This is going to be embarrassing because we don’t have a problem of no explanation. We have a problem with too many explanations. Of course, we can observe the data. The explanations you have to fight over and argue over. I will give you the two most prominent explanations for the efficacy of momentum.
The first is called underreaction. Simple idea that comes from behavioral psychology, the phenomenon there called anchoring and adjustment. News comes out. Price moves but not all the way. People update their priors but not fully efficiently. Therefore, just observing the price move is not going to move the same amount again but there’s some statistical tendency to continue.
Take a wild guess what our second best, in my opinion, explanation for momentum’s efficacy is? It’s called overreaction. When your two best explanations are over- and underreaction, you have somewhat of an issue, I admit. Overreaction is much more of a positive feedback. It works over time because people in fact do chase prices. So if you do it somewhat systematically and before them you make some money.
One of the hard things you find out in many fields but I found out in empirical finance is those might be the right explanations but they’re not mutually exclusive.
And here is from the overrated/underrated part of the chat:
COWEN: …In science fiction, the author Robert Heinlein.
ASNESS: Early stuff, underrated. Later stuff, overrated.
COWEN: What’s your favorite?
ASNESS: That is a really — Methuselah’s Children.
COWEN: Ah, good pick.
ASNESS: I could have gone with the obvious. I’m a bit of a libertarian. I could have gone with, The Moon Is A Harsh Mistress. It’s his most famously libertarian book.
COWEN: But it doesn’t age so well.
ASNESS: No, no. I like Methuselah’s Children.
This was the funniest segment:
ASNESS: I live in Greenwich, Connecticut. In some parts of the world, if you said, “my daddy runs a hedge fund,” I’d say, “what’s a hedge fund?” In Greenwich, Connecticut, the kids say, “what kind of hedge fund is your daddy running? Is he event arbitrage? Trend following? What does dad do?”
Interesting throughout, as they are known to say…
Claims about cetaceans (speculative)
…cetacean brain size, relative to body size, increased substantially about thirty-eight mill years ago when the odontocetes evolved from the ancient archaeocetes…
What drove these changes? It does not seem to have been the transition to an aquatic existence itself as that occurred about fifty-five million years ago and brains stayed at roughly the same relatively small size relative to body weigt as the archaeocetes made their gradual entry into the ocean. A better hypothesis is that the increased brain size of the odontocetes thirty-eight million years ago was driven by the evolution of echolocation. The early odontocetes had inner ear bones that were good at picking up high frequency sound, which suggests that they had developed a form of sonar. Lori Marino thinks “that echolocation came on line and then got co-opted for social communicative purposes.” In this scenario, the odontocete brains increased in relative size to deal with the acoustic information itself, as well as, perhaps, a new perceptual system based on the data from the returning echoes. But…the change may have been even more profound: “This may indicate that the large brains of early odontocetes were used, at least partly, for processing this entirely new sensory mode [echolocation] that evolved at the same time as these anatomical changes and perhaps for integrating this new mode into an increasingly complex behavioral ecological system.”
That is from the new and notable The Cultural Lives of Whales and Dolphins, by Hal Whitehead and Luke Rendell, previously covered on MR here. And here is my earlier post on the economics of dolphins.
The mortality costs of extremely cold weather
Here is an NBER paper from 2007 — perhaps it is timely today — by Olivier Deschenes and Enrico Moretti:
We estimate the effect of extreme weather on life expectancy in the US. Using high frequency mortality data, we find that both extreme heat and extreme cold result in immediate increases in mortality. However, the increase in mortality following extreme heat appears entirely driven by temporal displacement, while the increase in mortality following extreme cold is long lasting. The aggregate effect of cold on mortality is quantitatively large. We estimate that the number of annual deaths attributable to cold temperature is 27,940 or 1.3% of total deaths in the US. This effect is even larger in low income areas. Because the U.S. population has been moving from cold Northeastern states to the warmer Southwestern states, our findings have implications for understanding the causes of long-term increases in life expectancy. We calculate that every year, 5,400 deaths are delayed by changes in exposure to cold temperature induced by mobility. These longevity gains associated with long term trends in geographical mobility account for 8%-15% of the total gains in life expectancy experienced by the US population over the past 30 years. Thus mobility is an important but previously overlooked determinant of increased longevity in the United States. We also find that the probability of moving to a state that has fewer days of extreme cold is higher for the age groups that are predicted to benefit more in terms of lower mortality compared to the age groups that are predicted to benefit less.
Ungated versions of the paper can be found here. Addendum: The published version is here, with slightly different numbers.
Very Fast Insider Trading
On January 31, 2013, approximately 400 milliseconds before the official release of the EIA Natural Gas Report, trading activity exploded in Natural Gas Futures and ETFs such as UGZ, UNG and BOIL. Now that the Feds have stated (as claimed by a recent WSJ article) that they don’t think there is merit in prosecuting people who get news information earlier than others by milliseconds, is it any wonder?
More here. Previous MR posts on high frequency trading.
Father of HFT: Slow Down
Thomas Peterffy is one of the pioneers of automated stock trading. From NPR’s Planet Money:
…The company he started, Interactive Brokers, does electronic trades on a mind-boggling scale. Forbes estimates his net worth is now over $5 billion.
Peterffy says automation has done some very good things for the world. It’s made buying and selling stocks much much cheaper for everyone.
But Peterffy thinks the race for speed is doing more harm than good now. “We are competing at milliseconds,” he says. “And whether you can shave three milliseconds of an order, has absolutely no social value.”
Here are previous MR posts on high frequency trading.