Economics Insights @ CBS

Stocks with recent past high idiosyncratic volatility have low future average returns around the world. Across 23 developed markets, the difference in average returns between the extreme quintile portfolios sorted on idiosyncratic volatility is -1:31% per month, after controlling for world market, size, and value factors. The effect is individually significant in each G7 country. In the United States, we rule out explanations based on trading frictions, information dissemination, and higher moments.

How public pension plan assets should be invested is an important but unsettled question. Some observers endorse the standard practice of investing heavily in higher yielding but riskier equities, reasoning that the higher average returns will reduce future required tax receipts and also help to reduce underfunding over time. Others advocate a more conservative approach that reduces the volatility of funding levels and the likelihood of severe shortfalls during economic downturns when government resources are already constrained.

Accumulating evidence suggests that targets' displays of emotion shape perceivers' impression of those targets. Prior research has highlighted generalization effects, such as an angry display prompting an impression of hostility. In two studies, we went beyond generalization to examine the interaction of displays and behaviors, finding new evidence of augmenting effects (behavior-correspondent inferences are stronger when behavior is accompanied by positive affect) and discounting effects (such inferences are weaker when behavior is accompanied by negative affect).

Three experiments demonstrated that the experience of power leads to an illusion of personal control. Regardless of whether power was experientially primed (Experiments 1 and 3) or manipulated through roles (manager vs. subordinate; Experiment 2), it led to perceived control over outcomes that were beyond the reach of the power holder.