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Full-Text Articles in Finance and Financial Management
Information Acquisition And Expected Returns: Evidence From Edgar Search Traffic, Frank Weikai Li, Chengzhu Sun
Information Acquisition And Expected Returns: Evidence From Edgar Search Traffic, Frank Weikai Li, Chengzhu Sun
Research Collection Lee Kong Chian School Of Business
This paper examines expected return information embedded in investors' information acquisition activity. Using a novel dataset containing investors' access of company filings through SEC's EDGAR system, we reverse engineer their expectations over future payoffs and show that the abnormal number of IPs searching for firms' financial statements strongly predict future returns. The return predictability stems from investors allocating more effort to firms with improving fundamentals and following exogeneous shock to underpricing. A long-short portfolio based on our measure of information acquisition activity generate monthly abnormal return of 80 basis points and does not reverse over the long-run.. In addition, the …
Esg And The Market Return, Ran Chang, Liya Chu, Jun Tu, Bohui Zhang, Guofu Zhou
Esg And The Market Return, Ran Chang, Liya Chu, Jun Tu, Bohui Zhang, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
We propose an environmental, social, and governance (ESG) index. We find that it has significant power in predicting the stock market risk premium, both in- and out-of-sample, and delivers sizable economic gains for mean-variance investors in asset allocation. Although the index is extracted by using the PLS method, its predictability is robust to using alternative machine learning tools. We find further that the aggregate of environmental variables captures short-term forecasting power, while that of social or governance captures long-term. The predictive power of the ESG index stems from both cash flow and discount rate channels.
The Information Content Of Sudden Insider Silence, Claire Yurong Hong, Frank Weikai Li
The Information Content Of Sudden Insider Silence, Claire Yurong Hong, Frank Weikai Li
Research Collection Lee Kong Chian School Of Business
We present evidence of investors underreacting to the absence of events in financialmarkets. Routine-based insiders strategically choose to be silent when they possessprivate information not yet reflected in stock prices. Consistent with our hypothesis,insider silence following routine sell (buy) predict positive (negative) future return aswell as fundamentals. The return predictability of insider silence is stronger amongfirms with poor information environment and facing higher arbitrage costs, and alarge fraction of abnormal returns concentrates on future earnings announcements. Along-short strategy that exploits insiders’ strategic silence behavior generates abnormalreturns of 6% to 10% annually
Climate Risks And Market Efficiency, Harrison Hong, Frank Weikai Li, Jiangmin Xu
Climate Risks And Market Efficiency, Harrison Hong, Frank Weikai Li, Jiangmin Xu
Research Collection Lee Kong Chian School Of Business
Climate science finds that the trend towards higher global temperatures exacerbates the risks of droughts. We investigate whether the prices of food stocks efficiently discount these risks. Using data from thirty-one countries with publicly-traded food companies, we rank these countries each year based on their long-term trends toward droughts using the Palmer Drought Severity Index. A poor trend ranking for a country forecasts relatively poor profit growth for food companies in that country. It also forecasts relatively poor food stock returns in that country. This return predictability is consistent with food stock prices underreacting to climate change risks.
Investor Sentiment Aligned: A Powerful Predictor Of Stock Returns, Dashan Huang, Fuwei Jiang, Jun Tu, Guofu Zhou
Investor Sentiment Aligned: A Powerful Predictor Of Stock Returns, Dashan Huang, Fuwei Jiang, Jun Tu, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
We propose a new investor sentiment index that is aligned with the purpose of predicting the aggregate stock market. By eliminating a common noise component in sentiment proxies, the new index has much greater predictive power than existing sentiment indices have both in and out of sample, and the predictability becomes both statistically and economically significant. In addition, it outperforms well-recognized macroeconomic variables and can also predict cross-sectional stock returns sorted by industry, size, value, and momentum. The driving force of the predictive power appears to stem from investors' biased beliefs about future cash flows.
Asset Allocation In The Chinese Stock Market: The Role Of Return Predictability, Jian Chen, Fuwei Jiang, Jun Tu
Asset Allocation In The Chinese Stock Market: The Role Of Return Predictability, Jian Chen, Fuwei Jiang, Jun Tu
Research Collection Lee Kong Chian School Of Business
In this article the authors investigate asset allocation in the Chinese stock market from the perspective of incorporating return predictability. Based on a host of return predictors, they find significant out-of-sample return predictability in the Chinese stock market. They then examine the performance of active portfolio strategies—such as aggregate market timing as well as industry, size, and value-rotation strategies—designed to profitably exploit return predictability. Strong evidence is found by the authors that these portfolio strategies incorporating return predictability can deliver superior performance—up to 600 basis points per annum and almost double the Sharpe ratios—compared with the passive buy-and-hold benchmarks that …
The Disparity Between Long-Term And Short-Term Forecasted Earnings Growth, Zhi Da, Mitchell Craig Warachka
The Disparity Between Long-Term And Short-Term Forecasted Earnings Growth, Zhi Da, Mitchell Craig Warachka
Research Collection Lee Kong Chian School Of Business
We find the disparity between long-term and short-term analyst forecasted earnings growth is a robust predictor of future returns and revisions in long-term forecasted earnings growth. After adjusting for industry characteristics, stocks whose long-term earnings growth forecasts are far above or far below their implied short-term forecasts for earnings growth have negative and positive subsequent risk-adjusted returns, respectively. Despite the importance of conditioning on short-term forecasted earnings growth, these returns are not driven by earnings momentum. Instead, consistent with investors having limited attention, predictable revisions in long-term analyst forecasts appear to induce return predictability.