POSSIBLE TOPICS FOR RESEARCH PAPER 1) POLITICS & THE STOCK MARKET What is the effect of political variables on the stock market? In this project you can study the effect that some political variables of your choice have on stock returns. For example, some of the specific questions that you can consider relate to: Partisan Cycles – Are stock market returns higher under Democratic or Republican administrations? – What is the effect of Democratic or Republican administrations on specific sectors (defense, energy, health care, etc.) or on specific companies? Electoral Cycles – Are stock market returns higher in the few quarters before an election than in nonelection years? In this topic, instead of studying stock returns, you can also substitute them with interest rates, oil prices, and other variables of interest. 2) OIL PRICES & THE STOCK MARKET What is the effect of oil prices on the stock market? In this project, you can estimate the magnitude of the impact that changes in the price of oil have on stock returns. You can also narrow your research topic to specific sectors. For example: – what is the effect of oil price fluctuations on selected sectors or companies (oil companies, alternative energy companies, on the car or airline industry, etc.)? – are the effects constant over time? Are effects the same for oil price increases or decreases? For large and small oil price changes? 3) PSYCHOLOGY AND THE STOCK MARKET Stock price fluctuations seem sometimes driven by swings in market sentiment that appear unrelated to economic fundamentals. In this project, you will study the role that psychology, confidence, waves of optimism and pessimism, play on the stock market. 4) EMH: ACTIVE vs. PASSIVE INVESTING Compare the performance of mutual funds with similar passively-managed index funds. Do mutual funds outperform passive investments? How many mutual funds do better, the same, or worse than index funds? Do the best-performing funds in one period remain the best also in the following periods? That is, is the funds’ performance due to talent or luck? 5) NEWS, INVESTORS’ ATTENTION, AND STOCK MARKET RETURNS. Stock price fluctuations may, in part, be driven by the amount of attention or inattention that investors pay to the stock market, and by the coverage they receive in the media. As a measure of attention, you can use time series derived from search data about specific stocks (or the stock market in general) from Google trends, and relate them to specific company’s volumes of trade and stock returns. An alternative research project would consist of using Google Trends to devise a trading strategy capable of beating a buy-and-hold alternative. This can be done by exploiting specific Google queries as early-warning indicators (you can take inspiration from this article http://www.nature.com/srep/2013/130425/srep01684/full/srep01684.html). 6) INEQUALITY AND THE STOCK MARKET A defining feature of the U.S. economy over the last three decades has been the rise in income and wealth inequality. In this project, you can study whether the increase in inequality has had any effect on stock market returns, both for the market as a whole and for particular stocks (e.g., luxury, technology). 7) THE ROLE OF UNCERTAINTY IN THE STOCK MARKET Economic theory states that uncertainty, either about the state of the economy or policies, can negatively affect the economy by delaying consumers and firms’ decisions to purchase goods or invest in new capital. In this project, you can investigate the role that uncertainty plays in the stock market. In particular, you can study the following questions: What is the effect of uncertainty on the level of stock market returns? What is the effect on the correlation between single stocks and the market? Are particularly sectors or stocks more sensitive to high degrees of uncertainty? 8) YOUR OWN TOPIC You can choose your own topic, as long as it relates to the course and it consists of original research (that is, it has never been used in previous classes, etc.). In this case, I need to approve the topic choice beforehand. The choice of your own original topic carries a bonus of 5%.