How to shrink America’s income gap — Thomas Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From Fortune

What’s the one thing Pope Francis, Barack ObamaMarco Rubio, and Warren Buffett all agree on? America needs to change the way it sets wages to overcome its economically and politically unsustainable levels of income inequality.

The question is how? Let’s start with some lessons from history and see how we can apply them to today’s economy and society.

For 30 years after World War II, wages and productivity in the U.S. moved up in tandem, creating a growing middle class and ensuring baby boomers could realize their American Dream. We called that the “post-war Social Contract.” Then in the 1980s, the social contract fell apart, starting 30 years of stagnant wages, growing inequality, and political polarization.

The post-war Social Contract was possible because the New Deal established a floor on minimum wages and protected workers’ rights to organize and engage in collective bargaining. Then in the mid-1940s as the domestic economy grew on the basis of purchasing power pent up during the war, United Auto Workers’ President Walter Reuther and General Motors (GM) CEO Charles Wilson negotiated what was called the “Treaty of Detroit,” specifying that wage increases would be set to match growth in the cost of living and productivity. The strength of unions then helped spread this “pattern” bargain across American industry.

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In support of transparent financial benchmarks — Darrell Duffie , Piotr Dworczak, Haoxiang Zhu

MIT Sloan Asst. Prof. Haoxiang Zhu

From Vox, CEPR’s Policy Portal

Benchmarks are heavily wired into modern financial markets. For example, trillions of dollars in bank loans and several hundred trillion dollars (notional) of derivatives transactions depend on daily announcements of LIBOR. The WM/Reuters foreign exchange fixings dominate the currency markets, in which there are over $5 trillion of transactions per day. Benchmarks are the basis for trade of a wide range of commodities such as gold, silver, oil, and natural gas. They have also been the focus of scandals (Brousseau et al. 2013).

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Opinion: Even stock traders get the back-to-school blues — and we all feel it — Lily Fang

MIT Sloan Visiting Associate Professor of Finance Lily Fang

MIT Sloan Visiting Associate Professor of Finance Lily Fang

From MarketWatch

It’s widely known on Wall Street that September is the worst month for stocks. This is not just trader superstition. An article published in the Wall Street Journal last year points out that since 1896, the Dow Jones Industrial Average has lost 1.09% in September on average, while returns for every other month average 0.75%. Moreover, September is the only month that shows average declines over the past 20, 50, and 100 years.

While the September swoon is no secret, its precise cause is elusive. Possible explanations for the lower returns range from the complex — one study theorizes that portfolio managers sell stocks with recent losses in September to take advantage of tax breaks before the end of their tax year in October; to the dubious — some strategists claim it’s pure randomness; to the downright bizarre — a study by University of Kansas suggests that the decline in the amount of daylight in New York City in September might spark seasonal affective disorder and make some traders more risk-averse.

Importantly, this lower return was not driven by September alone, even though the September effect is pervasive in the northern hemisphere. Even when September is excluded, there is still a return gap of at least 0.5% between after-holiday months and other times, and the difference remains highly significant.

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Innovating with Bitcoin at MIT — Christian Catalini

MIT Sloan Professor Christian Catalini

MIT Sloan Professor Christian Catalini

From Xconomy

In November, we began distributing $100 in Bitcoin to every undergraduate student at MIT. A large share of the 4,500 eligible students participated in the project.

Bitcoin is an innovative payment network that allows for instant peer-to-peer transactions with zero or very low processing fees on a worldwide scale. The objective of the study is to observe the diffusion of Bitcoin, a software-based, open-source, peer-to-peer payment system on the MIT campus.

The initiative began in April 2014 when students Jeremy Rubin and Dan Elitzer organized the idea, raised the funds from donors, and launched the MIT Bitcoin Project. I started working with these students when it quickly became clear that the project had to become a full research study and had to meet the rigorous requirements of academic research at MIT.

Observing the ways students will innovate because of their newfound Bitcoin cash should be fascinating: MIT students are tech savvy, not set in their ways, generally a bit cash strapped anyway, and often open to new innovations. In the same way that MIT gave students early access to computing resources through the Athena project in 1983, this project intends to give participants early access to a digital currency.

Read the full post at Xconomy.

Christian Catalini is the Fred Kayne (1960) Career Development Professor of Entrepreneurship and Assistant Professor of Technological Innovation, Entrepreneurship, and Strategic Management at the MIT Sloan School of Management.

Opinion: How you can use earnings release dates to predict stock movements — Eric So

MIT Sloan Asst. Prof. Eric So

From MarketWatch

If you have good news, you want to rush to tell people about it. If you have bad news, you tend to stall, hoping it will go away or that some good news will come along to dilute it. Companies, it turns out, behave similarly — and therein lies an extraordinary opportunity that most investors have been missing.

I recently studied whether the announcements companies make when they reschedule earnings reports contain important information about the firms. This earnings season, for instance, investors may notice that Apple Inc.AAPL, -0.53%   moved forward its expected earnings announcement date to Oct. 20 from Oct. 28. Meanwhile, Coca-Cola Co. KO, -0.64%   has delayed its expected reporting date to Oct. 21 from Oct. 14.

What can investors predict from such behavior? Often, quite a lot.

When companies shift a scheduled reporting date, the announcement typically appears routine. Some financial reporting dates are set by regulation, but firms have discretion in scheduling earnings reports.

In this study, I analyzed the corporate reporting calendars of some 19,000 companies from 2006 through 2013. Wall Street Horizon, Inc., a firm that collects events information of publicly traded companies, provided the data.

I discovered that firms which moved up their reporting dates were considerably more likely to report higher earnings, while those that delayed their reporting dates tended to announce earnings declines. The stock values of the companies tracked closely with the earnings trends.

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