The Zell Center for Risk Research funds a number of special projects. Several are highlighted in this section:
The Zell Center provided research support for Risk Topography: Systemic Risk and Macro Modeling. A brief description is below: more information can be found here.
The Great Recession was an urgent call for rethinking the measurement of economic activity and for developing macroeconomic models in which finance plays an important role. Macroeconomic models with financial frictions are key to assess the impact of a meltdown of the financial sector (“systemic risk”) and to conceptualize measurement. Measurements in turn help to discriminate across different macroeconomic models in addition to revealing the fragility of the financial sector, and potential adverse spillover effects to the real economy. The book contains a selection of papers that discuss ideas on advancing measurement and macroeconomic modeling. Two themes run through the book: First existing flow and stock measures need to be complemented by measures of risk, the risk topography. Second, in order to capture endogenous systemic risk it is important to acknowledge the interplay between general equilibrium (macro) models and data collection. The book will be of value to those in regulatory positions who since the crisis have been involved in efforts to improve current measurement systems. The book will also be of interest to academics that plan to conceptualize effective measurement and plan to make future use of the collected data to discriminate across various macroeconomic models with financial frictions.
The Zell Center is providing research support for the third edition of Derivative Markets: To be financially literate in today’s market, business students must have a solid understanding of derivatives concepts and instruments and the uses of those instruments in corporations. The Second Edition has an accessible mathematical presentation, and more importantly, helps students gain intuition by linking theories and concepts together with an engaging narrative that emphasizes the core economic principles underlying the pricing and uses of derivatives.
Professor Jonathan Parker
Consumer Spending and the Economic Stimulus Payments of 2008* with Nicholas S. Souleles, University of Pennsylvania and NBER; David S. Johnson, U.S. Census Bureau; Robert McClelland, Bureau of Labor Statistics.
Abstract: Using special questions added to the Consumer Expenditure Survey, we measure the response of household spending to the economic stimulus payments (ESPs) disbursed in mid- 2008. We find that, on average, households spent about 12-31% of their stimulus payments on non-durable goods during the three-month period in which the payments were received. Further, there was also a substantial and significant increase in spending on durable goods, in particular autos. Improving on previous research, these spending responses are estimated with precision using only variation in the timing of ESP receipt. We also find some evidence of an ongoing though smaller response in the subsequent three-month period, though this response cannot be estimated with precision. Further, we find little evidence that the propensity to spend varies with the means of delivery (paper check versus electronic transfer). The estimated responses are substantial and significant for older, lower-income, and home-owning households. Finally, we evaluate a complementary methodology for quantifying the impact of tax cuts, which asks consumers to self-report whether they spent their tax cuts. The response of actual spending to the ESPs is indeed largest for self-reported spenders, though self-reported savers also spent a significant fraction of the payments.
Presented staff briefing for the staff of the Board of Governors of the Federal Reserve System in Washington, DC on May 2010.
Professor Daniel Diermeier
The Kellogg Reputation Central web site
The site will provide continuous quantifications for the reputation of Fortune 500 companies. The reputation measurements will derive from sophisticated analyses of news coverage using advanced text analytics. The web site will also serve as a research hub for scholars interested in integrating cutting-edge computational linguistics methods to business school research. As such, a section will be devoted to the posting of working papers and other research documents.
Business people have long recognized the importance of reputation. However, despite a substantial body of research, a solid methodology for quantify reputation is lacking. Advances in text analytics and in computational linguistics more generally are now allowing such quantification.
- Download Project Description (PDF 19 KB / 2 pages)
- Report from the governing council meeting at the Institute of Medicine
- Download and view the video "A Vision for Patient Safety," with Lucian Leape, MD. This ten-minute video requires RealPlayer.
- Update: Patient Safety Education Project (PSEP) Core Safety Curriculum almost complete (PDF 51 KB)
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Professor Camelia Kuhnen
The influence of affect on beliefs, preferences and financial decisions (with Brian Knutson). Journal of Financial and Quantitative Analysis, forthcoming.
"The Neural Basis of Financial Decision Making"
- Download Project Description (PDF 8 KB / 1 page)
- Her paper, a study on genes and financial risk taking, has been published in the journal of the Public Library of Science (PLoS ONE) . It is also covered in this article by Reuters: http://uk.reuters.com/article/healthNews/idUKTRE51A0CY20090211and this one by Scientific American: http://www.sciam.com/blog/60-second-science/post.cfm?id=my-genes-made-me-invest-dna-implica-2009-02-10 . It was featured on American Public Media's MarketPlace radio program, as can be seen at:http://marketplace.publicradio.org/display/web/2009/02/11/genetic_spending/
"The Zell Study on the Determinants of Risk Attitudes"
"Are You Trading Predictably?" (with Steven L. Heston, Ronnie Sadka and Lewis D. Thorson). Financial Analysts Journal. Vol 67, No. 2. 2011. CFA Institute
"Pricing the Commonality Across Alternative Measures of Liquidity” (with Ronnie Sadka) Journal of Financial Economics 87 (January 2008): 45-72.
"Intraday Patterns in the Cross-Section of Stock Returns" (with Steven L. Heston andRonnie Sadka). Journal of Finance 65(4): 1369-1407. 2010.
This research won the Dr. Richard A. Crowell Memorial Prize.
Professor Deborah Lucas
"Liquidity and Manipulation of Executive Compensation Schemes" (with Ulf Axelson)
"Domestic Political Survival and International Conflict: Is Democracy Good for Peace?" (with David O. Lucca and Tomas Sjöström)
Professor Keith Murnighan
"Cheating Makes You Smarter: The Relationship Between Deception and Cognitive Sophistications" (with Long Wang, Northwestern University)
- Project Description (PDF 4 KB )
"Immorality from Guilt in Ethical Decision Making: Overdo and Overcorrection" (with Long Wang, Northwestern University)
- Project Description (PDF 53 KB )
"How to reduce the risk of deception: The Influence of Positive Affect on Ethical Decision Making" (Long Wang, Northwestern University and Alice M. Isen, Cornell University)
- Project Description (PDF 9 KB )
"Creativity and Accountability in Negotiation" (with Nir Halevy)
- Project Description (PDF 96 KB )
Jump-Robust Volatility Estimation using Nearest Neighbor Truncation (with Dobrislav Dobrev, Ernst Schaumburg). Forthcoming, Journal of Economics.
VOLATILITY: PRACTICAL METHODS FOR FINANCIAL APPLICATIONS (with Tim Bollerslev, Peter Christoffersen and Francis X. Diebold). Forthcoming, Princeton University Press.
Financial Market Volatility: From ARCH and GARCH to Stochastic and Realized Volatility" (with Tim Bollerslev). Under Preparation for MIT Press – Zeuthen Lectures.
Winning with Risk Management. Forthcoming, Spring 2013. World Scientific
This book develops the notion that companies can succeed on the basis of risk management, much as companies compete on efficiency, costs, labor, location, and other dimensions that provide advantages. The reality of risk and how it impacts companies is that it is definite, often catastrophic and looks like a shock to the firm. This is striking, as a difference between firms on risk management can be more definite and impactful than a difference in operating efficiencies, for example. Those successful with risk are more clearly identified and the spoils are more clearly and immediately claimed. Winning with risk management requires discipline and a commitment to using information in decisions. More specifically, it requires recognizing shocks in industries and when competitors are poorly prepared so that action can be taken. Winning with risk also requires protecting owned assets and guarding against threats and reputational risks.
This book will examine how leading firms that compete on risk have successfully done so. Through select case studies, this book showcases best practices in making risk management a competitive advantage in an enterprise. The cases further suggest that the competitive advantage from risk management also has implication on the capital structure of firms and their organizational formation.
The competitive use of risk is not simply based on a set of algorithms, but rather encompasses how the enterprise deals with uncertainty, how it gathers data and transforms such data into meaningful risk information. The use of risk information requires that organizations seek and examine disconfirming information and promote a culture for decision-making that is open to such disconfirming information. This book will also examine how organizations must develop, treat, and communicate risk information for the purposes of winning with risk management.