David Solomon
Welcome to my web page. I’m currently completing my 3rd year of a Finance PhD at the University of Chicago, Graduate School of Business.
My research interests include Empirical Asset Pricing, Behavioral Finance, Prediction Markets and Mutual Funds.
Email me at dsolomon.at.chicagogsb.edu
CV: [PDF]
Publications: ‘A Multinomial Approximation of
American Option Prices in a Levy Process Model’,
with Ross Maller and Alex Szimayer, Mathematical Finance, Vol. 16, No.
4, pp. 613-633, October 2006
Abstract.
This paper gives a tree based method for pricing American options in models where the stock price
follows a general exponential L´evy process. A multinomial model for approximating the stock price process,
which can be viewed as
generalising the binomial model of Cox, Ross and Rubinstein (1979) for geometric Brownian motion, is developed. Under mild
conditions, it is proved that the stock price process and the prices of
American-type options on the stock, calculated from the multinomial model,
converge to the corresponding prices
under the continuous time L´evy process model. Explicit illustrations are given
for the variance gamma model and the normal inverse Gaussian process when the
option is an American put, but the procedure is applicable to a much wider
class of derivatives including some path-dependent options. Our approach
overcomes some practical difficulties that have previously been encountered
when the L´evy process has infinite activity.
[PDF]
Working ‘Efficiency and the Disposition Effect in NFL Prediction Markets’
Papers: with Sam Hartzmark
Updated
April 2007
Abstract:
The betting market for NFL football games at Tradesports.com offers a unique opportunity to test market efficiency while minimizing the joint hypothesis problem. We find systematic mispricing where prices for a given team to win are too low (relative to efficient prices) when the team gets ahead and too high when they get behind. This is consistent with the disposition effect, where investors are more likely to close out their positions at a profit than a loss, thus creating uninformed price pressure. The disposition effect is particularly strong because the pre-game price acts as a common reference point for many investors, who thus face the same gains or losses at each point in time. Returns following news events exhibit characteristic patterns of initial reversal and subsequent momentum, which are difficult to reconcile with other potential explanations. Games with higher levels of liquidity, where arbitrageurs have greater incentive to correct prices, exhibit somewhat worse mispricing than other games, suggesting that greater liquidity does not necessarily reduce the price impact of behavioral biases.
[PDF]
‘Changing
Horses Midstream: The Causes and Effects of Changes in Investment Strategy
Amongst Mutual Funds’
Abstract: This paper examines the performance of mutual funds surrounding changes in investment strategy, where portfolio holdings have changed sufficiently from one period to the next to indicate that the fund is investing according to different decision rules. Various types of strategy change tend to result in lower subsequent returns to funds, suggesting that such funds demonstrate negative timing ability. Extending on the Frazzini and Lamont (2006) ‘dumb money’ argument, these changes are driven in part by fund flows. The adverse timing ability of these funds also results in predictability in stock returns.
[PDF]
How
Effective are Individual Lifestyle Changes in Reducing Electricity Consumption?
Measuring the Impact of Earth Hour
Abstract: On March 31st 2007 at 7:30pm,
the residents of Sydney, Australia, held Earth Hour, where people were urged to
turn off lights and electrical appliances for one hour. According to poll
evidence, over 57% of Sydney took part. To estimate the impact of this event,
simply measuring the difference between actual consumption and predicted
consumption (as media reports did) gives an incorrect inference, because over
67% of the apparent decline was due to factors common throughout the day, not
just Earth Hour. Once this is controlled for, electricity consumption during
Earth Hour shows a decline of only 2.10%, statistically indistinguishable from
zero. Declines as large as those during Earth Hour were common throughout the
whole day and within the overall sample, suggesting that cause is omitted
variables, not the event itself. These results indicate that policies aimed at
encouraging reductions in individual household energy use may be of
considerably less benefit than commonly assumed.
[PDF]
Popular Op-Ed piece in The Australian Newspaper on Earth Hour, May 9,
Writing: 2007
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About Me: I
enjoy Ultimate Frisbee, Squash, playing the acoustic guitar, and swimming at Cottesloe beach