David Solomon
Welcome to my web page. I’m currently in my 5th year of a Finance PhD at the University of Chicago, Graduate School of Business, and on the job market in Fall 2008.
My research interests include Empirical Asset Pricing, The Role of the Media, Behavioral Finance, Prediction Markets and Mutual Funds.
Email me at dsolomon.at.chicagogsb.edu
CV: [PDF]
Job Market ‘Selective
Publicity and Stock Prices
Paper: September 2008
Abstract: I look at the effects of employing an investor relations (IR) firm on company visibility and the relative media coverage of the company’s good and bad news. I find that IR firms increase media coverage around press releases, with the effect being roughly 70% larger for press releases with positive tone. Moreover, positive media coverage appears to increase investor expectations of the company’s prospects. Around non-earnings announcements, IR firm clients have disproportionately greater coverage of positive events, and significantly higher returns. Around earnings announcements, which are more anticipated and easier to interpret, IR firms show no ability to generate disproportionately positive coverage, and returns are significantly lower. This is consistent with greater positive coverage increasing expectations of future profitability, resulting in smaller positive surprises around releases of hard information. Using data on geographical and historical links to newspapers and reporter turnover, I show evidence that these relationships are causal.
[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
May 2008
Revise and Resubmit, The
Economic Journal
Abstract:
Examining betting contracts for NFL football games at Tradesports.com, we find evidence of mispricing consistent with the disposition effect, where investors prefer closing positions at a profit than a loss. Prices for a given team to win are too low when the team gets ahead and too high when they get behind. Returns following news events exhibit short-term reversals and longer-term momentum characteristic of the disposition effect. Higher liquidity games, with larger incentives for arbitrage, exhibit more systematic mispricing, without obvious limits to arbitrage. These results indicate circumstances where prediction market prices provide less accurate forecasts.
[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
Updated May 2008
Abstract: This paper examines a unique
natural experiment where Sydney residents turned off lights and electrical
appliances for one hour. While polls reported 57% of Sydney participated,
statewide electricity use declined by 2.10%, statistically indistinguishable
from zero. This indicates that discretionary household electricity use like
lighting forms only a small component of total electricity consumption, and
policies targeting such use may be of limited impact. Using poll data on
participation and previous estimates of household electricity consumption,
evidence indicates that respondents overstated their involvement by around 36%.
This is consistent with consumers feeling pressure to overstate their
preferences for environmental goods.
[PDF]
Popular Op-Ed piece in The Australian Newspaper on Earth Hour, May 9,
Writing: 2007
[html]
About Me: I enjoy
Ultimate Frisbee, Squash, playing the acoustic guitar, and swimming at Cottesloe Beach