nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2018‒03‒26
fifteen papers chosen by
Bernardo Bátiz-Lazo
Bangor University

  1. Fundamental Values of Cryptocurrencies and Blockchain Technology By Jun Aoyagi; Daisuke Adachi
  2. Private Information, Credit Risk and Graph Structure in P2P Lending Networks By J. Christopher Westland; Tuan Q. Phan; Tianhui Tan
  3. Crowdfunding success prediction: An emprical study on Indiegogo platform By Seda Tolun; Cem Gürler; Mehmet Ça?lar
  4. EffectEffective use of educational platform ((Edmodo)) for students of mathematics and Computer specialty in t By Yousef Alanezi
  5. Role of Foreign Exchange Reserve in Exchange Rate Behaviour The Persisting Asymmetry: A Historical Account By Atulan Guha
  6. Online Networks, Social Interaction and Segregation: An Evolutionary Approach By Angelo Antoci; Fabio Sabatini
  7. Measuring the Demand Effects of Formal and Informal Communication : Evidence from Online Markets for Illicit Drugs By Luis Armona
  8. Integrating Third Parties in Digitally Mature Companies: Determinants of Innovation Success By Daria Arkhipova; Giovanni Vaia
  9. Financial literacy gaps across countries: the role of individual characteristics and institutions By Andrej Cupak; Pirmin Fessler; Maria Silgoner; Elisabeth Ulbrich
  10. Fraud risk assessment within blockchain transactions By Pierre-Olivier Goffard
  11. Understanding how people think about their daily spending By Sheffield, Mary; Hasbrouck, Heidi; Coulter, Alice; Jäckle, Annette; Burton, Jonathan; Crossley, Thomas F.; Couper, Mick P.; Lessof, Carli
  12. Valuation, Liquidity Price, and Stability of Cryptocurrencies By Carey Caginalp; Gunduz Caginalp
  13. Prediction and Identification in Two-Sided Markets By Andre Boik
  14. The Promises and Pitfalls of Robo-advising By Francesco D'Acunto; Nagpurnanand Prabhala; Alberto G. Rossi
  15. Competition in the Venture Capital Market and the Success of Startup Companies: Theory and Evidence By Hong, Suting; Serfes, Konstantinos; Thiele, Veikko

  1. By: Jun Aoyagi; Daisuke Adachi
    Abstract: We propose a theoretical model to measures the fundamental values of cryptocurrency and blockchain technology. Due to its secure nature, blockchain allows the transactions to be state-contingent based on highly credible state information. In an economy with adverse selection, traders have an incentive to buy assets with unknown quality by using cryptocurrency to exploit the higher security of blockchain technology. This induces the demand for the cryptocurrency or access to the blockchain platform, determining the fundamental value of these new digital innovations. We also analytically demonstrate the effect of higher security of the blockchain technology: it leads to wider spreads in prices and qualities of assets traded via blockchain protocol and the traditional cash market. As well, it has a non-linear effect on the fundamental values of the cryptocurrency and blockchain platform, depending on the severity of underlying adverse selection. The welfare of agents is also derived, and it is shown to be collinear with the fundamental value of cryptocurrency.
    Date: 2018–02
  2. By: J. Christopher Westland; Tuan Q. Phan; Tianhui Tan
    Abstract: This research investigated the potential for improving Peer-to-Peer (P2P) credit scoring by using "private information" about communications and travels of borrowers. We found that P2P borrowers' ego networks exhibit scale-free behavior driven by underlying preferential attachment mechanisms that connect borrowers in a fashion that can be used to predict loan profitability. The projection of these private networks onto networks of mobile phone communication and geographical locations from mobile phone GPS potentially give loan providers access to private information through graph and location metrics which we used to predict loan profitability. Graph topology was found to be an important predictor of loan profitability, explaining over 5.5% of variability. Networks of borrower location information explain an additional 19% of the profitability. Machine learning algorithms were applied to the data set previously analyzed to develop the predictive model and resulted in a 4% reduction in mean squared error.
    Date: 2018–02
  3. By: Seda Tolun (Istanbul University School of Business, Quantitative Methods Department); Cem Gürler (Istanbul University School of Business, Quantitative Methods Department); Mehmet Ça?lar (Y?ld?z Technical University Faculty of Economic and Administrative Sciences Department of Business Administration Numerical Methods)
    Abstract: Crowdfunding is an appealing financing method to enterpreneurs with financial difficulties in realizing their project ideas. This practice is an endeavour to raise funds for a project or a business venture from a large population where the enterpreneurs make an open call through the internet and try to persuade individuals to support their innovative ideas. Within four different types of crowdfunding and hundreds of websites emerged, this study focuses on reward and donation based crowdfunding in one of the most prominent platforms, Indiegogo. The study introduces a decision tree model that classifies the submitted projects at Indiegogo as successful or not and underlines the key success features for entrepreneurs who are to make an online call for fundraising.
    Keywords: classification, data mining, crowdfunding, binary model, knowledge discovery
    JEL: C38 C80
    Date: 2017–10
  4. By: Yousef Alanezi (Paaet)
    Abstract: Of the highlights of the events witnessed this era is the information revolution, which made a big coup in the nature of receiving the information both on the level of the lesson or lecture, or at the level of general culture and knowledge-current technology, and techniques of social communication "Admodo- Edmodo" educational platforms. A modern technological programs that help deliver information to students, and the benefit of educators, parents, coaches and administrators, and generally in the teaching, learning and administration. -Known as electronic "Aladmodo" educational platforms as an interactive learning environment that employs Web 2.0 technology, combining the advantages of e-content management systems and the networks of social networking Facebook, and enables teachers to disseminate lessons and objectives, and the dissemination of the duties, and the application of educational activities, and contact teachers through techniques multiple, as it enables teachers to conduct electronic tests and the distribution of roles and the division of students into working groups, and help to exchange views and ideas between student teachers. And the participation of the scientific content and allows parents to communicate with teachers and see the results of their children, which helps to achieve high quality educational outcomes.This research aims to:First, identify the educational software platforms "Admodo- Edmodo" and its applications and the most important advantages in education and contemporary learning.
    Keywords: Edmodo; Green learning; Flipped Classroom
    JEL: A20 A20 A20
    Date: 2017–10
  5. By: Atulan Guha (Indian Institute of Management Kashipur)
    Abstract: Foreign exchange and monetary gold reserve is a very important factor to determine nominal exchange rate for the countries whose currency has very little use as reserve currency. Whereas, for the reserve currency countries it is not so important ?it is primarily because of their greater money pulling power internationally through rate of interest change. They have this power because their currencies are having greater use as international money. Though the international monetary systems have changed from fixed exchange rate of Gold Standard period to independent float or managed float exchange rate systems of today?s world, this asymmetry between the reserve currency countries and the other countries has not change. Though, ideally under flexible exchange rate system, the importance of foreign exchange reserve in determining nominal exchange rate should be very little. This paper takes an historical review of all the International Monetary System to establish the importance of foreign exchange reserve in determining exchange rate for developing countries; but it is not be the case with the reserve currency countries.
    Keywords: Exchange Rate, Foreign Exchange Reserve, fixed exchange rate, flexible exchange rate
    JEL: F31 F33 F41
    Date: 2017–10
  6. By: Angelo Antoci; Fabio Sabatini
    Abstract: There is growing evidence that face-to-face interaction is declining in many countries, exacerbating the phenomenon of social isolation. On the other hand, social interaction through online networking sites is steeply rising. To analyze these societal dynamics, we have built an evolutionary game model in which agents can choose between three strategies of social participation: 1) interaction via both online social networks and face-to-face encounters; 2) interaction by exclusive means of face-to-face encounters; 3) opting out from both forms of participation in pursuit of social isolation. We illustrate the dynamics of interaction among these three types of agent that the model predicts, in light of the empirical evidence provided by previous literature. We then assess their welfare implications. We show that when online interaction is less gratifying than offline encounters, the dynamics of agents’ rational choices of interaction will lead to the extinction of the sub-population of online networks users, thereby making Facebook and similar platforms disappear in the long run. Furthermore, we show that the higher the propensity for discrimination of those who interact via online social networks and via face-to-face encounters (i.e., their preference for the interaction with agents of their same type), the greater the probability will be that they all will end up choosing social isolation in the long run, making society fall into a “social poverty trap”.
    Keywords: Social networks; segregation; dynamics of social interaction; social media, social networking sites.
    JEL: C73 D85 O33 Z13
    Date: 2018–03–01
  7. By: Luis Armona
    Abstract: I present evidence that communication between marketplace participants is an important influence on market demand. I find that consumer demand is approximately equally influenced by communication on both formal and informal networks- namely, product reviews and community forums. In addition, I find empirical evidence of a vendor's ability to commit to disclosure dampening the effect of communication on demand. I also find that product demand is more responsive to average customer sentiment as the number of messages grows, as may be expected in a Bayesian updating framework.
    Date: 2018–02
  8. By: Daria Arkhipova (Dept. of Management, Università Ca' Foscari Venice); Giovanni Vaia (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: We develop and empirically analyse a theoretical model that examines both the antecedents of digital maturity and the involvement of external third parties in companies undergoing digital transformation. We use structural equation modelling technique to test our propositions using the survey data from IT executives on self-reported importance scores they assign to different types of IT competences. We find that digitally mature companies are more likely to establish partnerships with the third parties with a purpose of jointly carrying out digital innovation projects.
    Keywords: digital transformation, digital maturity, sourcing decisions
    JEL: M40
    Date: 2018–03
  9. By: Andrej Cupak (National Bank of Slovakia and LIS: Cross-National Data Center in Luxembourg); Pirmin Fessler (Oesterreichische Nationalbank); Maria Silgoner (Oesterreichische Nationalbank); Elisabeth Ulbrich (Oesterreichische Nationalbank)
    Abstract: We examine recently compiled microdata from the OECD/INFE survey covering information on the financial literacy of adult individuals from twelve countries around the globe. We find large differences in financial literacy across countries and decompose them into those explainable by differences in individual characteristics and those that cannot be explained by such differences. We show that individual characteristics matter with regard to differences in average financial literacy, but do not fully explain the observed differences. We further relate the unexplained differences in our microeconometric analysis to institutional differences across countries. We find strong relationships between the differences in financial literacy not explained by individual characteristics and life expectancy, social contribution rate, PISA math scores, internet usage, and to a lesser degree by GDP per capita, the gross enrolment ratio and stock market capitalization. Our results suggest that there is room for harmonization of economic environments across countries regarding decreasing inequality in the population’s financial literacy.
    Keywords: financial literacy gaps; inequality; decomposition analysis; counterfactual methods; personal finance; survey data
    JEL: D14 D91 I20
  10. By: Pierre-Olivier Goffard (Department of Statistics and Applied Probability - University of California [Santa Barbara], University of California [Santa Barbara])
    Abstract: The probability of successfully spending twice the same bitcoins is considered. A double-spending attack consists in issuing two transactions transferring the same bitcoins. The first transaction, from the fraudster to a merchant, is included in a block of the public chain. The second transaction, from the fraudster to himself, is recorded in a block that integrates a private chain, exact copy of the public chain up to substituting the fraudster-to-merchant transaction by the fraudster-to-fraudster transaction. The double-spending hack is completed once the private chain reaches the length of the public chain, in which case it replaces it. The growth of both chains are modeled by two independent counting processes. The probability distribution of the time at which the malicious chain catches up with the honest chain, or equivalently the time at which the two counting processes meet each other, is studied. The merchant is supposed to await the discovery of a given number of blocks after the one containing the transaction before delivering the goods. This grants a head start to the honest chain in the race against the dishonest chain.
    Keywords: Bitcoin blockchain,double-spending problem,risk theory,order statistic point processes,renewal processes,boundary crossing problems
    Date: 2018–02–23
  11. By: Sheffield, Mary; Hasbrouck, Heidi; Coulter, Alice; Jäckle, Annette; Burton, Jonathan; Crossley, Thomas F.; Couper, Mick P.; Lessof, Carli
    Abstract: ISER commissioned Kantar Public to conduct 20 in-depth face-to-face qualitative interviewsto explore how people think about their personal finances, with a view to understand howto design a mobile app to minimise the burden on participants recalling their daily spending,as part of the using a mobile app of Understanding Society: the UK Household LongitudinalStudy. The research asked participants to recall recent spending both spontaneously andusing three pre-defined models. As well as contributing to the understanding of how peopleconceptualise spending, the qualitative research also provides recommendations forimproving the way that this information can be elicited from participants using an app.
    Date: 2018–03–13
  12. By: Carey Caginalp; Gunduz Caginalp
    Abstract: Cryptocurrencies are examined through the asset flow equations and experimental asset markets. Since tangible value of a typical cryptocurrency is non-existent, the theory suggests that price will gravitate toward liquidity value, i.e., the total amount of cash available for purchase of the asset divided by the number of units. Thus it is unlikely that cryptocurrencies in their current form will be stable in the absence of a mechanism of a link to value.
    Date: 2018–02
  13. By: Andre Boik
    Abstract: I introduce a reduced form two-sided market model to study prediction and identification in two-sided markets. The model generates the hallmark features of two-sided markets: potentially below cost or even negative prices to one side of the market, and the “see-saw” or “waterbed” effect of a tendency for price movements across sides to be negatively correlated. I show that the standard “one-sided” model of complements is a special case of the two-sided model, and that it generates those same hallmark features of two-sided markets. The model of complements also performs well in predicting price effects even when the data is actually generated by the two-sided market model; the “wrong” model often delivers the right answers and can be used to estimate market power and pass through rates. I show that even a naive one-sided model that ignores any relationship across goods/sides can perform well when prices to one side of the market are censored at zero, a very common outcome in two-sided markets. The main cost to using a model of complements to estimate cross-group effects in a two-sided market is that it invites the use of invalid instruments. I show that these findings are consistent with the empirical regularities and identification strategies in the existing two-sided market and indirect network effects literatures. I conclude by discussing the general difficulty of separately identifying whether price differences across subgroups of users of a platform are driven by pricing of network effects or simple price discrimination based on price elasticity.
    Keywords: two-sided markets, complements, prediction, identification
    JEL: L00 L13
    Date: 2018
  14. By: Francesco D'Acunto; Nagpurnanand Prabhala; Alberto G. Rossi
    Abstract: We study a robo-advising portfolio optimizer that constructs tailored strategies based on in- vestors’ holdings and preferences. Adopters are similar to non-adopters in terms of demographics, but have more assets under management, trade more, and have higher risk-adjusted performance. The robo-advising tool has opposite effects across investors with different levels of diversification before adoption. It increases portfolio diversification and decreases volatility for those that held less than 5 stocks before adoption. These investors’ portfolios perform better after using the tool. At the same time, robo-advising barely affects diversification for investors that held more than 10 stocks before adoption. These investors trade more after adoption with no effect on average performance. For all investors, robo-advising reduces - but does not fully eliminate - pervasive behavioral biases such as the disposition effect, trend chasing, and the rank effect, and increases attention based on online account logins. Our results emphasize the promises and pitfalls of robo-advising tools, which are becoming ubiquitous all over the world.
    Keywords: FinTech, portfolio choice, behavioral finance, individual investors, financial literacy, technology adoption
    JEL: D14 G11 O33
    Date: 2018
  15. By: Hong, Suting (Shanghai Tech University); Serfes, Konstantinos (Drexel University); Thiele, Veikko (Queen's University)
    Abstract: We examine the effect of a competitive supply of venture capital (VC) on the success rates of VC-backed startup companies (e.g. IPOs). We first develop a matching model of the VC market with heterogeneous entrepreneurs and VC firms, and double-sided moral hazard. Our model identifies a non-monotone relationship between VC competition and successful exits: a more competitive VC market increases the likelihood of a successful exit for startups with low quality projects (backed by less experienced VC firms in the matching equilibrium), but it decreases the likelihood for startups with high quality projects (backed by more experienced VC firms). Despite this non-monotone effect on success rates, we find that VC competition leads to higher valuations of all VC-backed startups. We then test these predictions using VC data from Thomson One, and find robust empirical support. The differential effect of VC competition has a profound impact on entrepreneurship policies that promote VC investments.
    Keywords: entrepreneurship; venture capital; matching; double-sided moral hazard; exit; IPO
    JEL: C78 D86 G24 L26 M13
    Date: 2018–02–01

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