The following manuscripts are unpublished working papers. Pls contact me for citation permission.
- The Elasticity of Trust: How to Promote Trust in the Arab Middle East and the United States. (with Bohnet, Iris, Herrmann, Benedikt, Robbett, Andrea, Al-Yahia, Khalid, and Zeckhauser, Richard). HKS Faculty Research Working Paper Series RWP10-031, June 2010.
To trust is to risk. When we lend someone money, we make ourselves vulnerable, hoping or expecting that the borrower will reward our trust and return the money at a later stage, possibly with interest or a reciprocal favor added. Generally, people are more willing to engage in a risky activity, such as buying a stock or starting a business, the greater the expected returns from the activity. This paper examines whether willingness to trust follows the same logic, that is, whether it responds to changes in the expected value of trusting, much like willingness to take risk responds to changes in the expected value of risk taking, in various countries of the Arab Middle East, namely, Jordan, Saudi Arabia and the United Arab Emirates and in the United States.
- “What Does Health Reform Mean for the Healthcare Industry? Evidence from the Massachusetts Special Senate Election”. (with Miller, N. H.). July 2010. NBER Working Paper Series, Vol. w16193, pp. -, 2010.
President Obama's health insurance reform efforts, as embodied in the bills passed by the House and Senate in late 2009 and signed into law in March of 2010, have been described both as a boon and a death blow for private insurance industries. Using stock-price data on health care firms in the S&P health index, we exploit Republican Scott Brown's surprise victory in the Massachusetts Special Senate election to fill the seat of the late Ted Kennedy, which stripped Democrats of the 60-vote majority needed to pass the bill in the Senate, to evaluate the market's assessment of health reform on the health care industry. We find that the reduced likelihood of Health Reform’s passage after the Brown election led to a significant increase in health industry stocks and average cumulative abnormal returns of 1.2 percent, corresponding to an increase in total market value of approximately $14.5 billion. Focusing on managed care (insurance) firms, we find an average cumulative abnormal return of 6.5 percent (a $6.7 billion increase in market value), with individual firms’ cumulative abnormal returns ranging from around 5 to 9 percent.
- The Cross Border Financial Impact of Violent Events
This paper argues that violent events have two economic effects: a direct loss from the destruction of physical and human capital, and a reallocation of financial and economic resources. It is the first to document the positive cross-border impact that follows violent events as a result of this reallocation. Thus, it reconciles the two existing perspectives in the literature on whether violence has a small or large economic effect. Our results show that, in globally integrated markets, the substitution of financial and economic activities away from afflicted countries magnifies their losses. Additionally, the paper evaluates the impact of certain geographic, political and financial country characteristics on the reallocation of capital.
- The Impact Of Religious Experience On Financial Markets
Religion plays an important role in peoples’ lives, yet its impact on financial markets is seldom researched. This study examines the effect of religious experience during the Muslim holy days of Ramadan and Ashoura on the daily returns and trading volumes of seventeen financial markets. Muslim holy days are especially conducive to isolating the elusive faith effect and decoupling it from potential contaminants. The study documents statistically significant changes in the daily trading volume and stock returns associated with these religious experiences. This paper utilizes the heterogeneity of worship intensity within the month of Ramadan to validate its hypothesis.
- Does Insurance Increase Trust, (with Bohnet I.)
This paper examines whether an instrument commonly used to mitigate risk, insurance, also promotes trust. We employ a binary-choice trust game and show that theoretically, the answer is not obvious. Principals are confronted with a complex optimization problem: insurance lowers the cost of betrayal but if agents are inequality averse or reciprocally motivated, it also increases its likelihood. In experiments in Jordan and the US, trustworthiness decreases as insurance increases. The relationship between insurance and trust is not significant in Jordan and positive in the US. When designing institutions, both cultural factors and social preferences should be taken into account.
- Evaluating the Impact of Domestic, Regional and International Violence and Instability on the Jordanian Economy Using the Event Study Methodology
This paper deploys the event study methodology to examine the impact of domestic, regional, and international violence and instability events on the Jordanian economy. The study demonstrates the ASE’s ability to incorporate news of such negative events into the valuation of its listed companies. ASE investors react positively to such events when occurring in Lebanon and Iraq, but negatively when they occur internationally. However, generally investors do not respond to such events when they occur domestically. International events trigger a statistically significant negative reaction from the banking sector. The study evaluates the impact of these events across different sectors and concludes with relevant policy recommendations.