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A Socioeconomic Well-Being Index

Author

Listed:
  • A. Alexandre Trindade
  • Abootaleb Shirvani
  • Xiaohan Ma

Abstract

An annual well-being index constructed from thirteen socioeconomic factors is proposed in order to dynamically measure the mood of the US citizenry. Econometric models are fitted to the log-returns of the index in order to quantify its tail risk and perform option pricing and risk budgeting. By providing a statistically sound assessment of socioeconomic contentment, the index is consistent with rational finance theory, enabling the construction and valuation of insurance-type financial instruments to serve as contracts written against it. Endogenously, the VXO volatility measure of the stock market appears to be the greatest contributor to tail risk. Exogenously, “stress-testing” the index against the politically important factors of trade imbalance and legal immigration, quantify the systemic risk. For probability levels in the range of 5% to 10%, values of trade below these thresholds are associated with larger downward movements of the index than for immigration at the same level. The main intent of the index is to serve as an early-warning mechanism for negative changes in the mood of citizens, thus alerting policy makers and private agents to potential future market downturns.

Suggested Citation

  • A. Alexandre Trindade & Abootaleb Shirvani & Xiaohan Ma, 2020. "A Socioeconomic Well-Being Index," Applied Economics and Finance, Redfame publishing, vol. 7(4), pages 48-62, July.
    • Handle: RePEc:rfa:aefjnl:v:7:y:2020:i:4:p:48-62
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    References listed on IDEAS

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    Cited by:

    1. Abootaleb Shirvani, 2020. "Stock Returns and Roughness Extreme Variations: A New Model for Monitoring 2008 Market Crash and 2015 Flash Crash," Applied Economics and Finance, Redfame publishing, vol. 7(3), pages 78-95, May.
    2. Thilini Mahanama & Abootaleb Shirvani & Svetlozar Rachev, 2021. "Global Index on Financial Losses due to Crime in the United States," Papers 2105.03514, arXiv.org.
    3. Thilini Mahanama & Abootaleb Shirvani & Svetlozar Rachev, 2022. "A Natural Disasters Index," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 263-284, April.
    4. Thilini V. Mahanama & Abootaleb Shirvani, 2020. "A Natural Disasters Index," Papers 2008.03672, arXiv.org.
    5. Kasun Chandrarathna & Arman Edalati & AhmadReza Fourozan tabar, 2020. "Forecasting Short-term load using Econometrics time series model with T-student Distribution," Papers 2009.13595, arXiv.org.
    6. Thilini Mahanama & Abootaleb Shirvani & Svetlozar T. Rachev, 2021. "Global Index on Financial Losses Due to Crime in the United States," JRFM, MDPI, vol. 14(7), pages 1-16, July.

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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