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Papers by Christophe Faugère

SSRN Electronic Journal, 2010

This is a first sketch of Connectalism: a new contextual framework for analyzing human choice. Co... more This is a first sketch of Connectalism: a new contextual framework for analyzing human choice. Connectalism is rooted in systems thinking and humanistic psychology. It melds together ancient and modern wisdoms about man's relationship with the perceived universe. Basic motivation for the concept, postulates and analytical tools are presented here.

Consistent with Portfolio Insurance Abstract: We find that the long-run equity premium is fully e... more Consistent with Portfolio Insurance Abstract: We find that the long-run equity premium is fully explained by GDP growth and that it is consistent with a short-term portfolio insurance motive. We first derive the macroeconomic equivalent of the standard sustainable growth formula to determine the long-run average return on stocks. The average stock market return depends on the GDP/capita growth rate and the retention rate net of share repurchases. Next, we determine the economy’s return on corporate assets and show that the return on corporate debt is related to overall GDP growth. After calibrating key macro economic/finance parameters, we obtain values for expected equity and corporate debt returns that respectively match the S&P 500 and 3-month T-bill historical arithmetic average returns. Our first conclusion is that in the long-run, the equity premium is generated by economic growth. Our second key result is that the equity premium is also closely approximated by the premium pai...

We develop a vertical differentiation game-theoretic model that addresses the issue of designing ... more We develop a vertical differentiation game-theoretic model that addresses the issue of designing free software samples for attaining follow-on sales. When software samples are akin to durable goods, a Monopolist giving a free sample away is likely to engender the cannibalization of sales of its commercial product. We analyze the optimal design of free software according to two characteristics: the trial time allotted for sampling (potentially renewable) and the proportion of features included in the sample. We find that these two dimensions play different roles whenever the software product is innovative or standard. We draw implications regarding the effectiveness of marketing strategies depending on the type of software product offered by a Monopolist.

Game Theory and Information, 2003

Corporate reputation is widely seen as a valuable if intangible asset for most companies. In turn... more Corporate reputation is widely seen as a valuable if intangible asset for most companies. In turn, a company’s reputation is shaped in significant ways by the attention it receives in the mass media. Hence this paper explores media attention to large-scale corporate scandals. Building on the literature on both agenda setting and corporate reputation, we examine quality newspaper coverage of a sample of 123 major corporate scandals between 1990 and 2016. Whilst previous studies typically examined specific corporate scandals in isolation, we focus on the interplay of different scandals as well as on changes in media attention over time, which are not least due to the rise of social media. With regard to the interplay of scandals, we observe crowding-in processes between scandals of different types, accompanied by routinization effects where repeated scandals are of the same type. We also find substantial changes in media agenda-setting, where more recent scandals have attracted signif...

Academy of Management Proceedings

We investigate how a company’s choice of a response strategy to a large-scale scandal influences ... more We investigate how a company’s choice of a response strategy to a large-scale scandal influences subsequent levels of mass media coverage. In particular, we examine (a) how different crisis respons...

This study takes a novel approach to testing the efficacy of technical analysis. Rather than test... more This study takes a novel approach to testing the efficacy of technical analysis. Rather than testing specific trading rules as is typically done in the literature, we rely on institutional portfolio managers' statements about whether and how intensely they use technical analysis, irrespective of the form in which they implement it. In our sample of more than 10,000 portfolios, about one-third of actively managed equity and balanced funds use technical analysis. We compare the investment performance of funds that use technical analysis versus those that do not using five metrics. Mean and median (3 and 4-factor) alpha values are generally slightly higher for a cross section of funds using technical analysis, but performance volatility is also higher. Benchmark-adjusted returns are also higher, particularly when market prices are declining. The most remarkable finding is that portfolios with greater reliance on technical analysis have elevated skewness and kurtosis levels relativ...

Systems Research and Behavioral Science

Journal of Business Research

Critical Studies on Corporate Responsibility, Governance and Sustainability, 2016

Réflexions critiques sur la finance moderne, 2000

In line with the transaction motive literature (Baumol, 1952 and Tobin, 1956), I postulate that f... more In line with the transaction motive literature (Baumol, 1952 and Tobin, 1956), I postulate that financial innovations generate transactional cost savings by comparison to barter. Hence, the optimal velocity of narrow money is a function of labor productivity growth and of the differential between long-term and short term rates. A key parameter in that relation is the mean leverage ratio for depository institutions. I use a VECM for the U.S. (using M1, M1RS and M1S) from 1959-2007 and find good support for the model. The velocity of money tracks productivity growth at about 2% over the period. Setting the inflation target rate equal to the growth rate of velocity leads to an inflation rate near 2% and is akin to pursing a Friedman (1960) k% rule that takes into account a trending money velocity. While this rule is not shown to be optimal here, it provides flexibility to prevent deflations. A long-term Taylor (1993) type rule is also derived.

Global Business and Organizational Excellence, 2015

Business Ethics a European Review, 2017

A socioeconomic and demographic analysis of U.S. Google Trends for queries about Business Ethics ... more A socioeconomic and demographic analysis of U.S. Google Trends for queries about Business Ethics and Greed is proposed in the context of the 2008 financial crisis. The framework is grounded in the ethical decision‐making literature. Two models using micro and macro‐type variables are tested using GLM and GEE regression techniques. The frequency of these Google queries varies positively with the ratio of females, educational attainment, younger adult age, some measures of economic hardship or inequalities, and the lesser the weight of the finance industry represented in each State. The frequency of queries intensifies for these same socioeconomic and demographic categories, in the aftermath of the financial crisis. This article is the first to study the salience of business ethics as an issue in the empirical literature using a nationwide database. It also provides a first empirical study in the specialized literature on “ethics in a time of crisis”. This study lays a preliminary groundwork to identify pro‐ethical reform segments of the population, with practical use for financial regulatory agencies.

This is a test of our RYT valuation model during the crash of August 25th 2015. 1.3% absolute per... more This is a test of our RYT valuation model during the crash of August 25th 2015. 1.3% absolute percentage error from actual! NO fudge factor. We also get a Fear premium (VIX scale) of 33 real close to actual VIX of 36.

A short synopsis of how fear impacts valuation

SSRN Electronic Journal, 2010

Game Theory and Information, 2003

Academy of Management Proceedings

Systems Research and Behavioral Science

Journal of Business Research

Critical Studies on Corporate Responsibility, Governance and Sustainability, 2016

Réflexions critiques sur la finance moderne, 2000

Global Business and Organizational Excellence, 2015

Business Ethics a European Review, 2017

A short synopsis of how fear impacts valuation

It is uncanny that historically, the large majority of U.S. market crashes have occurred in the m... more It is uncanny that historically, the large majority of U.S. market crashes have occurred in the month of October. I assert that three key conditions are gathered for this to happen. 1) There is a market-wide or macroeconomic informational ambiguity that has been lingering since before the summer months with high downside risk; 2) that despite this ambiguity, leverage is used to create a bubble and 3) that investors are driven by what I call the “ambiguity-forced-resolution bias.” I apply this reasoning to predict a crash in October 2020. I show that there currently is a bubble in the U.S. using a new indicator. I test that ambiguity/uncertainty was unusually high in months prior October crashes. Finally, I discuss why this upcoming crash is an opportunity for investors to reorder the equity market’s priorities to fund sectors that tackle rising societal and environmental challenges.