Three Essays on Categories in Financial Markets

Paper 1 Although recent scholarship had faulted the constraining views of prior categories studies, there is no systematic theoretical analysis of how category membership influences the actions and reactions of categorized firms and their audiences. While previous arguments suggested that audiences' penalties imposed on category spanners constrained actions of categorized firms, many studies have shown that market actors often span categories and, in some cases, their actions met with audiences' approval. In this paper, I argue that these inconsistencies are partly because of the missing links between categorical cognitions and category-based actions; the missing links are the affective consequences of categorical cognitions. I propose stereotypes as complementary categorical cognitions with affective consequences. Based on theories of stereotypes, I show that audiences and categorized actors display different types of emotions towards different categorical stereotypes and that these emotions lead to different types of actions.Paper 2 Faced with a crippling foreign currency shortage, the Central Bank of Nigeria (CBN) matched different foreign currency inflows to different types of foreign currency demands. In this paper, I conceptualize the outcomes of CBN policies in the foreign currency markets as dynamic categorizations and behavioral earmarking in financial markets. However, because other actors in the market cognitively earmarked their foreign currency positions with estimates different from CBN valuations, CBN behavioral earmarking exacerbated the crisis in the foreign currency markets leading to a breakdown of market mechanisms as well as fragmentation of the foreign currency markets in Nigeria.Paper 3 In this paper, I theorize and test the utilities of stereotype-based categorization in financial markets. The paper shows that stereotypical perceptions of foreign firms’ countries of origin influence their evaluations on major stock exchanges in the United States. While perceptions of warmth stereotypes seem to boost foreign firm valuations, perceptions of competence stereotypes seem to depress foreign firm valuations. I discuss the implications of these findings for organization categories literature and sociology of financial markets