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Empirical Essays On Retail Investors, Institutional Investors, And Anomalies, Yuqing Yang

Dissertations, Theses, and Capstone Projects

This dissertation consists of five chapters on market efficiencies through retail and international mutual fund investors.

Chapter 1 This chapter briefly introduces this dissertation.

Chapter 2 This chapter Anomalies Never Disappeared: The Case of Stubborn Retail Investors delves into the “stubborn” retail investors and finds that anomalies traded against by retail investors never disappear in the long run, defying the conventional wisdom that anomalies are disappearing in recent years as market efficiency improves. Incorporating retail trading, I develop asset pricing models that surpass existing prominent models in explaining these long-run alphas. I hypothesize that retail investors exacerbate anomalies: the more …

Short Selling Etfs, Frank Weikai Li, Qifei Zhu

Research Collection Lee Kong Chian School Of Business

We provide novel evidence that arbitrageurs use exchange-traded funds (ETFs) as an avenue to circumvent short-sale constraints at the stock level. Using a large sample of U.S. equity ETF holdings, we document that shorting activity on ETFs rises with the difficulty of shorting underlying stocks. Stocks heavily shorted via their holding ETFs underperform those that are lightly shorted. The return predictability of ETF shorting is distinct from stock-level shorting measures and is concentrated among stocks that face severe arbitrage constraints. These findings suggest that ETFs allow arbitrageurs to target overpriced stocks that are otherwise difficult to short.

Global Perspective Or Local Knowledge: The Macro-Information In The Sovereign Cds Market, Yaqing Xiao, Hongjun Yan, Jinfan Zhang

Hongjun Yan

This paper shows that sovereign CDS spreads can predict future stock index returns, sovereign bond yields, as well as real macroeconomic variables such as GDP and PMI. The predictive power comes almost entirely from the global, rather than country-specific, component of sovereign CDS spreads. This is consistent with the interpretation that the information advantage of sovereign CDS investors is derived from their global perspective rather than their local knowledge about individual countries. Stock and sovereign bond market indices gradually “catch up” with sovereign CDS spreads, mostly during the days surrounding credit rating or outlook changes, and especially for downgrades.

Global Perspective Or Local Knowledge: The Macro-Information In The Sovereign Cds Market, Yaqing Xiao, Hongjun Yan, Jinfan Zhang

Publications – Dreihaus College of Business

This paper shows that sovereign CDS spreads can predict future stock index returns, sovereign bond yields, as well as real macroeconomic variables such as GDP and PMI. The predictive power comes almost entirely from the global, rather than country-specific, component of sovereign CDS spreads. This is consistent with the interpretation that the information advantage of sovereign CDS investors is derived from their global perspective rather than their local knowledge about individual countries. Stock and sovereign bond market indices gradually “catch up” with sovereign CDS spreads, mostly during the days surrounding credit rating or outlook changes, and especially for downgrades.

Arbitrage Risk, Investor Sentiment And Maximum Daily Returns, Kenneth A. Tah

Doctoral Dissertations

We test the cross-sectional relation between daily maximum return (MAX) and return in the following month for stocks with high and low idiosyncratic volatility. We use portfolio level analysis and firm-level cross-sectional regression to find that the negative and significant relation between MAX and expected stock return (known as the "MAX effect") is a non-January phenomenon observed predominantly on a sample of stocks with high idiosyncratic volatility. We find that the effect of investor sentiment on the MAX effect depends on arbitrage risk. Our findings suggest that arbitrageurs find it difficult to correct the mispricing of stocks with extreme positive …

Anchoring Bias, Idiosyncratic Volatility And The Cross-Section Of Stock Returns, Cedric Tresor Luma Mbanga

Doctoral Dissertations

Ang, Hodrick, Xing and Zhang (2006) document an anomaly in the cross-section of stock returns. They show that high idiosyncratic volatility (IVOL) firms earn lower returns in the following month. Specifically, they find after sorting stocks in quintile portfolios based on the previous month's IVOL that a zero-investment portfolio long the most volatile quintile of stocks and short the least yields about -1% during the subsequent month. The evidence reported in Ang, Hodrick, Xing and Zhang (2006) is primarily puzzling because traditional asset pricing theories suggest that (i) only systematic risk should be priced, (ii) to the extent that markets …