Price-Based Return Comovement (with T. Clifton Green), 2009, Journal of Financial Economics 93, 37-50.
We find that shortly after a stock conducts a 2-1 split, the stock starts co-moving more with lower priced stocks and less with higher priced stocks. This shift in comovement occurs after the effective date of the split and not on (or before) the announcement date of the split. Our results suggest that investors care about a company's stock price; they are also broadly consistent with the notion that investors moving money in and out of categories induces stock-return comovement above and beyond what would be expected based on firm fundamentals.
It Pays to Have Friends (with Seoyoung Kim), 2009, Journal of Financial Economics 93, 138-158.
The conventional view of director independence is based on financial/familial ties to the CEO/firm. Here, we provide evidence that social ties between directors and CEOs also matter. We approximate social ties via background similarities (e.g., the CEO and the director both served in the military, share an alma mater, were born in the same region,...). We find that firms whose boards are conventionally and socially independent award a significantly lower level of compensation, exhibit stronger pay-performance sensitivity, and exhibit stronger turnover-performance sensitivity than firms whose boards are conventionally independent only.
Country-Specific Sentiment and Security Prices, 2011, Journal of Financial Economics 100, 382-401.
I provide evidence that a country’s popularity among Americans (as measured via Gallup Polls) affects US investors’ demand for securities from that country and causes security prices to deviate from their fundamental values. Country popularity also positively associates with the intensity of US cross-border M&A activity, suggesting that country popularity not only enters the investment-decision-making process of investors, but also that of firms.
IPOs as Lotteries: Skewness Preference and First-Day Returns (with T. Clifton Green), 2012, Management Science 58, 432-444.
We provide evidence that skewness preference plays a role in the pricing of stocks. In particular, we find that IPOs predicted to be more positively skewed have significantly higher returns on the first day of trading; these IPOs also have lower long-term returns.
Working Papers (under construction)
Can Short Selling Help Correct Under-Pricing? (with Baixiao (Tony) Liu and Wei Xu), 2013.
In this paper, we argue that
the ability to short not only allows investors
to trade on over-pricing; it also enables
investors to hedge their long positions, thereby
facilitating arbitrage activity and the
elimination of under-pricing.
We take advantage of the institutional feature in Hong Kong that only stocks on a list of designated securities can be sold short and we show that the addition of a stock to the list is associated not only with negative abnormal returns for the added stock, but also with strong positive abnormal returns among its seemingly undervalued industry peers; this pattern holds particularly true if the addition event is associated with actual shorting activity and if the added stock is one of the first stocks from its industry that can be shorted. Relatedly, earnings announcements in more-difficult-to-short industries are followed by a greater post-earnings-announcement drift not only after negative earnings surprises, but also after positive earnings surprises.
"Consistent" Earnings Surprises (with Dong Lou), 2013.
We hypothesize that analysts
with a bullish stock recommendation have an
interest that they subsequently not be
contradicted by negative firm-specific news. As
a result, these analysts report conservative,
i.e., downward biased, earnings forecasts so
that the company is less likely to experience a
negative earnings surprise. Analogously,
analysts with a bearish recommendation report
upward biased earnings forecasts in order to
avoid positive earnings surprises.
Consistent with this notion, we find that stock recommendations significantly and positively predict subsequent earnings surprises, in particular, narrow-beats versus narrow-misses. This predictability is concentrated in situations where the motivation for such behavior is particularly strong. Stock recommendations also predict earnings announcement day returns. A long-short portfolio that exploits this predictability earns abnormal returns of 157 basis points per month.
Customers as Advisors: The Role of Social Media in Financial Markets (with Hailiang Chen, Prabuddha De and Yu (Jeffrey) Hu), 2013.
Consumers are increasingly
relying on peer-based advice/ratings, such as
those found on Yelp.com or
Amazon.com, when choosing among products
and services. But do peer-opinions actually
impart value-relevant information and help us
find the best products? Or do they merely
chatter in a task best left to the “experts”
such as the Consumer Report? We look to
financial markets as a setting to address this
question. The financial marketplace
has seen a tremendous growth in
social-media outlets, basically allowing any interested
investor to share the results of his/her own security analysis. The reports
summarizing the analysis tend to be relatively long and resemble,
in format, those of professional sell-side
analysts. Fellow users can respond via
In this study, we examine the views expressed in the reports and commentaries posted on the biggest investment-related social media outlet in the US from 2005 to 2011, and we test whether these “investor-turned-advisor opinions” predict future stock returns and earnings surprises. In short, our evidence suggests that the views expressed in articles and comments each substantially contribute in predicting future stock returns and earnings surprises. The predictability strengthens with the number of comments over which readers’ aggregate views are measured. Together, these findings point to the usefulness of investor-turned-advisor opinions in financial markets, and to the value-relevance of peer-based opinions in general.
Which Anomalies are More Popular? And Why? (with Baixiao (Tony) Liu), 2013.
We document and discuss cues
that drive arbitrageurs’ behavior. In
particular, we test, for a wide set of
anomalies, whether arbitrageurs trade on
anomalies, which anomalies attract the most
arbitrage efforts, and what this reveals about
arbitrageurs’ decision-making process.
Arbitrage involvement is inferred via changes in
short interest when a security falls into the
“short leg” of an anomaly strategy, and we
provide evidence that this method generally
succeeds in capturing arbitrage activity.
Our findings suggest that arbitrageurs trade on anomalies, but that situational preference is given to high-volatility strategies. We argue this behavior is induced by asymmetric compensation contracts. We also provide a link between anomaly popularity and the corresponding anomaly strategy being discussed in the academic literature.
Click here for papers on SSRN
Electronic versions of published papers/working papers are provided as a professional courtesy to ensure timely dissemination of the research for individual non-commercial purposes. Copyright, and all other rights therein, reside with the respective copyright holders, as stated within each paper. These files may not be reposted without permission.
SAS Codes + Data
SAS-Code to compute White (1980) standard errors adjusted for clustering along two dimensions written by John McInnis (https://webspace.utexas.edu/johnmac/www/), slightly modified by me.
SAS-Dataset with Link between IBES-Ticker and PERMNO (includes data until the end of 2012) - Screenshot of Dataset
SAS-Dataset with Fama-French monthly factor returns (1993) purged of firms that have not been CRSP-listed for at least 60 months (includes data until the end of 2012) - Screenshot of Dataset/Data Description
More Specific Stuff:
- As used in Hwang + Liu ("Which Anomalies are More Popular? And Why?", Working Paper)
- As used in Gulen + Hwang ("Daily Stock Market Swings and Investors' Reaction to Firm-Specific News", Working Paper)
- As used in Green + Hwang ("Price-Based Return Comovement", Journal of Financial Economics, 2009)
- As used in Green + Hwang ("IPOs as Lotteries: Skewness Preference and First-Day Returns", Management Science, 2011)
Some SAS-Datasets are compressed. Click here to download 'WinRAR' to extract files.
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