newpic.jpgDavid Solomon

 

Assistant Professor of Finance and Business Economics

University of Southern California

Marshall School of Business

 

Office: Hoffman Hall 502

 

Phone: (213) 740 1057

 

Mailing Address:

3670 Trousdale Parkway, Suite 308

Bridge Hall 308, MC-0804

Los Angeles, CA, 90089-0804

 

Email: dhsolomo.at.marshall.usc.edu

 

Research             

Interests:              Empirical Asset Pricing, The Role of the Media, Behavioral Finance, Prediction Markets and Mutual Funds.                  

 

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               ‘Selective Publicity and Stock Prices

Papers:                 Updated October 2009

                             

                              Abstract: I look at the effects of investor relations (IR) firms on company media coverage and stock returns.  I find that IR firms ‘spin’ their clients’ news, defined as generating greater media coverage of positive press releases relative to neutral or negative press releases. This spin increases announcement returns. Around earnings announcements however, IR firms cannot spin the news, and IR firm clients’ returns are significantly lower. This is consistent with the positive media coverage increasing investor expectations, creating disappointment around hard earnings information. Using reporter connections and geographical and historical links to newspapers, I argue that these effects are causal.

 

                              [PDF]

 

 

‘Efficiency and the Disposition Effect in NFL Prediction Markets’

                              with Sam Hartzmark

                              Updated August 2009

                              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 out 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. Our results show that the disposition effect has significant price impact, and this mispricing is not reduced in higher liquidity games. The existence of the disposition effect in a gambling market calls into question explanations for the effect based on loss aversion, such as prospect theory, and is most consistent with a cognitive dissonance explanation.

 

                              [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