The Senior Thesis provides Princeton students with the opportunity to develop their scholarly interest and to evolve as independent thinkers. The students work one-on-one with a faculty member who guides them through the process. Undergraduate Associates of the class of 2017 researched a wide variety of topics in their thesis ranging from the effects of trade, the effects of law enforcement on credit markets in Mexico, to analytical tools to predict case counts and theoretical models that explains seemingly anomalous trends in financial fund performance. The topics reflect the varied interest of this exceptional group of young thinkers who are soon to embark in careers in finance, public policy, or to continue their studies in law or PhDs in Economics. You can read the thesis abstracts below.
Haider Abbas '17
"Worlds Apart: An Explanation of the Immigration and Integration Policy Differences Between Denmark and Sweden from 1970 to 2010"
Immigration and integration policy have become central to the politics of many advanced democracies. In the face of substantial migratory flows, rising security concerns regarding immigration, and a refugee crisis of unprecedented levels, member states of the European Union (EU) have responded by calling for restrictive immigration policies, border patrolling and intensified integration programs. In this context, this thesis seeks to make sense of these contemporary changes in immigration and integration policy while keeping in mind historical influences.
This thesis analyzes differences in immigration and integration policy in Denmark and Sweden. It chooses Denmark and Sweden because they are a decent approximation of the most-similar cases research design. To examine the differences, it identifies three
major explanations in the literature: 1) National model path-dependency 2) The role of the political debate 3) Structure of party competition. While in the literature each factor is used independently to explain policy differences, this thesis takes an integrative approach and seeks to clarify the relationships among these variables. It then combines these three variables into a unified theory, and argues that this has far greater explanatory power.
The findings of this thesis demonstrate that historical events set into motion institutional patterns that structure and constrain future immigration and integration policy choices. The political tone of the debate complements these institutional patterns
by establishing the political context, and framing the immigration and integration policy issue in a distinct way. While the first two variables set the context for policy choice, the structure of party competition is crucial to how decisions are actually made.
Categorizing immigration and integration policy differences in Denmark and Sweden based on these explanations allows us to apply the unified theory to these countries. The analysis reveals that the first two factors defined the Swedish context.
First, the institutional pattern in Sweden since WWII has been strongly multicultural. Second, the tone of debate in Sweden has been dominated by welfare universalism and equal access to rights for immigrants. These factors were met with the third factor, a favorable structure of party competition, in which the mainstream right-wing parties isolated the far-right parties. In Denmark, on the other hand, WWII led to an assimilatory institutional trend. The tone of the debate was branded by calls to reduce immigration problems and initiate restrictive immigration and integration policies. These two variables met with the third variable, the structure of party competition, conditions in which encouraged a coalition between mainstream right-wing parties and far-right parties. These results systematically explain policy differences in Denmark and Sweden, establish the dynamics of the unified theoretical framework, and allow us to use it and its variations as a tool of analysis to understand immigration and integration policy across other countries.
Aslihan Asil '17 (Awarded the Halbert White ’72 Prize in Economics, the Walter C. Sauer ’28 Prize and the Undergraduate Research Forum)
"One Size Does Not Fit All: A Comparative Analysis of U.S. Merchandise and Service Trade Flows Pre and Post Great Recession"
The main purpose of this paper is to quantify the effects of main trade determinants on the United States bilateral merchandise and service trade flows between 1995-2015. To fulfill this goal, this paper uses the Gravity Model and runs regressions on US merchandise imports and exports from/to its 200 trading partners, and U.S. service imports and exports from/to its 70 trading partners. In order to isolate the immediate effects of the Great Recession on U.S. trade from long term trends, the data is divided into three periods: 1995-2007, 2008-2009, and 2010-2015. One main and interesting result is that U.S. merchandise imports became more responsive to partner GDP over the last two decades, and the elasticity of U.S. merchandise exports with respect to partner GDP remained relatively constant. In contrast, the responsiveness of both service imports and exports to partner GDP decreased. Another interesting finding is that trade agreements between the U.S. and its trading partners became especially important for U.S. merchandise imports and exports during the Great Recession.
Dhruv Bansal '17
"A Novel Approach to Modeling Zika Case Counts for Demographic Groups"
Zika, a formerly obscure, little-studied virus, recently burst onto the global scene, infecting over a million individuals across more than 33 countries in under a year. The virus ignited an explosion of research that focused on simulating weekly case counts through mathematical models and characterizing the two most potent consequences of the disease, microcephaly and Guillain-Barr´e Syndrome (GBS). While such models have largely been successful, little literature has attempted to develop predictions for case counts by demographic group. This is an especially important deficiency given preliminary analyses suggesting that Zika may disproportionately affect certain demographic groups, notably women. This thesis aims to fill this gap by creating a novel, flexible framework to generate weekly demographic case counts using simple demographic data.
We focus on analyzing gender and population density in the 2013-2014 outbreak of Zika in French Polynesia. To begin, we survey existing literature to select a base framework, design a noisy case assignment policy, and identify a series of transmission parameter modifications. Next, we implement the assignment policy and the parameter modifications in the base framework, validate the predictions using self-developed evaluation criterion, and contextualize the results in broader literature. Finally, we conduct an illustrative impact analysis to demonstrate how our model can be used to guide policymakers and public health
officials. We end with a discussion of our methodology’s limitations, potential for future work, and closing remarks.
This thesis establishes the ability for our model to predict weekly case counts by gender in French Polynesia and, more broadly, leverage population-level demographic proportions to derive a reasonable range of case counts, opening the door to future characterization and prediction built upon the framework outlined in this paper.
Rene Chalom '17 (Awarded the Wolf Balleisen Memorial Prize and the Undergraduate Research Forum)
"They're Beating Us in Trade? The Effect of Chinese Imports on U.S. Manufacturing Labor Dynamics"
This paper analyzes the effect that rising levels of imports from China to the United States between 2000 and 2007 have on U.S. local labor market outcomes. I exploit geographical variation in industry make-up within the manufacturing sector to estimate the effect of import competition on U.S. manufacturing employment, earnings, and worker flows. Using administrative data from the Quarterly Workforce Indicators (QWI), this paper builds on the data produced by Autor, Dorn, and Hanson (2013) and replicates the authors' finding that commuting zone locations that are more exposed to import competition from Chinese goods have greater declines in manufacturing employment. By also examining manufacturing worker flows, this paper adds new findings to the previously existing trade and labor literature. I estimate that an exogenous $1,000 increase in import exposure per worker from Chinese goods between 2000 and 2007 is associated with an 8.7 percent decline in U.S. manufacturing hires and a 4.9 percent decline in U.S. manufacturing separations at the commuting zone level, with hiring losses concentrated among younger and less-educated workers. The resultant decline in worker separations partially reconciles Autor et al. (2013) with its recent critique by Rothwell (2017).
Daniel Chen '17 (Awarded the Burton G. Malkiel *64 Senior Thesis Prize in Finance and the Halbert White ’72 Prize in Economics)
"A model of mutual fund performance, flows, and fees with rational agents"
This paper develops a model with rational agents to study the patterns of performance, fund flows, and fees in the actively managed mutual fund industry. The model reproduces several empirical trends traditionally regarded as anomalous---fund performance fails to persist in the long term though it exhibits short term persistence, investors chase recent performance, and fees for funds with similar return histories can differ substantially. A few simple mechanisms lead to this results. Fund returns follow a Brownian Motion with drift equaling alpha, a fund manager's ability. However, alpha is itself time varying according to a mean reverting process (Ornstein-Uhlenbeck) with long run mean equaling zero. A consequence of these processes is that fund performance persists in the short term, but is on average non-existent. Because returns serve as noisy signals of alpha, investors learn about a manager's ability by observing his or her fund's history of returns in order to make optimal investment decisions. Since recently winning managers are more likely to be skillful at picking stocks in the near future and investors are aware of this, on average, assets flow to recent winners. However, performance is not the only dimension along which investors value funds. They also value extra-portfolio characteristics (fund age, size, ETF, advertising, manager-client services). Because these extra-portfolio characteristics often take time and effort to "produce", fund managers incur differing marginal costs. Consequently funds with similar performance histories but different marginal costs charge different fees in equilibrium.
Hyeon Seon Ju '17
"Securitization of the Longevity Risk: Case Study of the Reverse Mortgage"
This paper applies the Monte Carlo simulation to analyze the variables that influence the benefits of participating in the Home Equity Conversion Mortgage (HECM) program--a reverse mortgage program insured by the Federal Housing Administration (FHA). The reverse mortgage is an interest-bearing, non-concourse loan that allows elderly homeowners to monetize their residential properties while residing in their homes. Here we simulate the longevity risk using the Lee & Carter (1992) model, and model the interest rate and housing price using a regime-switching model and the nonparametric trend filtering approach. The simulation examines how the age at the participation, the property value, the property tax rate, the interest rates, and the payment type influence the benefits of the participants.
Jay Karandikar '17
"A Statistical Analysis of the Factors that Influence US Foreign Policy"
This thesis attempts to identify statistically the effect of economic linkages on US foreign policy. It does so by drawing upon the Cablegate data set of leaked diplomatic cables from Wikileaks. In addition, the thesis uses various other data sources, such as foreign trade from the US Census Bureau. The primary statistical technique used is regression, in an attempt to determine the significance of these various economic factors on the level of diplomatic activity between the US and other countries. This thesis also studies the differential response of US diplomats to terrorist attacks depending on the country the attack occurred in and the influence of changes in oil production on US diplomatic communications.
Christopher Perron '17
"Minding the GAAP: An Analysis of Historical Non-GAAP (Mis-)Use"
The SEC issued guidance in May 2016 on registrant’s presentation of non-GAAP data, which suggests it thought that historical corporate earnings reports employed at least some misleading non-GAAP earnings figures. Given the contemporary relevance of this accounting issue to future earnings reports and the investors that interpret and act on them, I worked to uncover to what extent technology companies (as a subset for all companies that frequently employ non-GAAP measures) used misleading non-GAAP metrics over the last ten years. I find that non-GAAP use was systematic and widespread over the last ten years in my sample of 25 companies, with the magnitude of this abuse increasing as time transpired. Non-GAAP addbacks were on average 94.6% of GAAP earnings, meaning that non-GAAP earnings were almost double their GAAP counterparts. In addition, most companies employed similar types of exclusions, including but not limited to misleading share-based compensation and individually tailored addbacks. I argue that in the future, and in addition to its May 2016 non-GAAP guidance, the SEC should increase comparability between similar companies and reduce the presence of misleading non-GAAP figures by prohibiting vague or business operations-related exclusions. For this research I use a definition of “misleading” developed by Deloitte in response to the SEC’s May 2016 non-GAAP guidance to assess the total level of non-GAAP misuse in my sample companies.
Andrew Tynes '17 (Awarded the John Glover Wilson Memorial Award)
"Commodity Price Shocks and Credit Supply in Resource-Dependent Economies"
This model estimates the elasticity of bank lending to changes in commodity prices in resource-dependent countries. Using foreign subsidiaries of multinational bank holding companies as a natural experiment, I find little evidence of a relationship between commodity price shocks and credit supply in resource-dependent economies between 1991 and 2015, despite the apparent relationship between macroeconomic conditions in the home country and the willingness of foreign subsidiaries to lend. A local projection indicates GDP growth, historical lending growth, deposit growth, and exchange rate changes play more substantive roles in explaining the evolution of credit over time. These results imply that while their balance sheets are exposed to home country conditions in general, foreign subsidiaries are insulated from resource shocks.
Arón H. Villarreal '17
"Courts and Credit in Mexico"
I study the effect of efficiency in commercial law enforcement on lending volume and default rate in the Mexican credit market. I focus in credit by commercial banks going to the private sector and the private housing sector. By using factor analysis, I construct variables for the quality, fairness and speed of the judicial branch of government of the 32 Mexican federal entities
in the years 2003, 2006, 2008, 2010 and 2012. I regress lending volume and default rate on these judicial variables under a random effects model. Because I have more detailed data for the last two versions of the study, I also use a first difference model for the years 2010 and 2012. My findings agree with the results of other longitudinal studies in Latin America: more efficient commercial law enforcement increases lending volume and decreases the default rate of the credit market. In particular, I find that when the judicial system is more efficient, commercial banks lend more possibly because their loans have higher expected returns and homeowners default less because their collateral is more efficiently seized.
Connor Werth '17
"Learning Stochastic Binary Feedback on a Sampled Hierarchical Belief Model: Optimal Pricing of Contracts in the Truckload Trucking Market"
We apply optimal learning to the truckload trucking market to understand industry phenomena and optimize revenue through contract pricing. In the trucking market, brokers arrange contracts between two firms, the trucking service provider (the carrier) and the customer (the shipper). The shipper and the carrier have competing and disguised pricing objectives which makes their responses to contract offers stochastic and binary. The broker’s challenge is to offer contract prices that are accepted by both firms. In the learning problem, we optimize and learn from the perspective of the broker and seek to learn the true pricing objectives of both firms. In the mathematical model, we first develop a family of logistic functions that describe a firm’s probabilistic response to a particular contract price. We design a sequential decision making model to learn the true responses of each firm for a single trucking route between two locations, primarily using the knowledge gradient policy for sampled beliefs. The single route model is then expanded, adapted, and used in conjunction with a hierarchical model to efficiently learn the responses of each firm over a multiple route trucking network. We demonstrate that the use of these models significantly increases broker revenue. Overall, this research presents a powerful framework for learning and optimal pricing in the truckload trucking market.