Open Access. Powered by Scholars. Published by Universities.®
- Keyword
-
- Hedge funds (27)
- Singapore (22)
- Liquidity (17)
- Return predictability (17)
- Corporate governance (15)
-
- Analysts (11)
- Short selling (11)
- Finance (9)
- Institutional investors (9)
- ESG (7)
- Market efficiency (7)
- Return Predictability (7)
- Risk (7)
- Agency problems (6)
- ETFs (6)
- Institutional trading (6)
- Mispricing (6)
- Momentum (6)
- Mutual funds (6)
- Persistence (6)
- Risk management (6)
- Thailand (6)
- Volatility (6)
- Accounting (5)
- Adverse selection (5)
- Alpha (5)
- Asset pricing (5)
- Benchmarks (5)
- COVID-19 (5)
- Climate change (5)
- Publication Year
Articles 1 - 30 of 582
Full-Text Articles in Business
Impact Of Geographical Diversification And Limited Attention On Private Equity Fund Returns, Victor Ong
Impact Of Geographical Diversification And Limited Attention On Private Equity Fund Returns, Victor Ong
Research Collection Lee Kong Chian School Of Business
This article analyzes the effect of geographical diversification on global private equity (PE) fund returns. We find that there is a negative correlation between geographical diversification and PE fund returns. To establish the causality between geographical diversification and PE fund returns, we employ an instrumental variable analysis where the instrument used is the stock market capitalization of the host country where the PE fund is based. Our results apply to Net IRR, TVPI and DPI as dependent variables used to proxy for PE fund returns in the main regression model. A one standard deviation increase in geographical diversification results in …
Presidential Economic Approval Rating And The Cross-Section Of Stock Returns, Zilin Chen, Zhi Da, Dashan Huang, Liyao Wang
Presidential Economic Approval Rating And The Cross-Section Of Stock Returns, Zilin Chen, Zhi Da, Dashan Huang, Liyao Wang
Research Collection Lee Kong Chian School Of Business
We construct a monthly presidential economic approval rating (PEAR) index from 1981 to 2019, by averaging ratings on the president’s handling of the economy across various national polls. In the cross-section, stocks with high betas to changes in the PEAR index significantly under-perform those with low betas by 1.00% per month in the future, on a risk-adjusted basis. The low PEAR beta premium persists up to one year, and is present in various sub-samples and even in other G7 countries. PEAR beta dynamically reveals a firm’s perceived alignment to the incumbent president’s economic policies and investors seem to misprice such …
Does Abstract Thinking Facilitate Information Processing? Evidence From Financial Analysts, Frank Weikai Li, Rong Wang, Yang Yu, Gloria Yang Yu
Does Abstract Thinking Facilitate Information Processing? Evidence From Financial Analysts, Frank Weikai Li, Rong Wang, Yang Yu, Gloria Yang Yu
Research Collection Lee Kong Chian School Of Business
We study whether abstract thinking – an essential cognitive trait established by psychological and neuroscientific studies – facilitates analysts’ information processing. Exploiting analysts’ questions during earnings calls, we construct an Abstract Thinking Index (ATI) that measures their tendency to involve abstract words, logical reasoning, broader topics, and future outlooks. We find that abstract thinking improves analysts’ forecast accuracy and recommendation informativeness. Consistent with abstract thinking featuring identifying central characteristics and comprehending intangible things, ATI has stronger effects for firms with fundamentals co-moving more with peers and less tangible information. Additional analyses suggest that ATI captures analysts’ cognitive traits rather than …
Learning From Manipulable Signals, Mehmet Ekmekci, Leandrro Gorno, Lucas Maestri, Jian Sun, Dong Wei
Learning From Manipulable Signals, Mehmet Ekmekci, Leandrro Gorno, Lucas Maestri, Jian Sun, Dong Wei
Research Collection Lee Kong Chian School Of Business
We study a dynamic stopping game between a principal and an agent. The agent is privately informed about his type. The principal learns about the agent’s type from a noisy performance measure, which can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium of this game. We find that terminations/ market crashes are often preceded by a spike in (expected) performance. Our model also predicts that, due to endogenous signal manipulation, too much transparency can inhibit learning. As the players get arbitrarily patient, the principal elicits no useful information from the …
The Alphabet Soup In Reporting And Measuring Esg, Hao Liang, Kam Chee Chan
The Alphabet Soup In Reporting And Measuring Esg, Hao Liang, Kam Chee Chan
Research Collection Lee Kong Chian School Of Business
Harmonising frameworks with the Impact-Weighted Accounts Framework.
Shrinking Factor Dimension: A Reduced-Rank Approach, Dashan Huang
Shrinking Factor Dimension: A Reduced-Rank Approach, Dashan Huang
Research Collection Lee Kong Chian School Of Business
We propose a reduced-rank approach (RRA) to reduce a large number of factors to a few parsimonious ones. In contrast to PCA and PLS, the RRA factors are designed to explain the cross section of stock returns, not to maximize factor variations or factor covariances with returns. Out of 70 factor proxies, we find that five RRA factors outperform the Fama-French (2015) five factors for pricing target portfolios, but performs similarly for pricing individual stocks. Our results suggest that existing factor proxies do not provide enough new information at the stock level beyond the Fama-French (2015) five factors.
The Sun Is Rising In The East: Dual-Class Shares And The Competitive Landscape Of Technological Industries In Asia, Hao Liang, Tran Bao Phuong Nguyen, Wei Zhang
The Sun Is Rising In The East: Dual-Class Shares And The Competitive Landscape Of Technological Industries In Asia, Hao Liang, Tran Bao Phuong Nguyen, Wei Zhang
Research Collection Lee Kong Chian School Of Business
There has recently been a relaxation of listing regulations to accommodate and attract firms going public with dual-class shares (DCS), notably in Asia. We examine the value implications of DCS adoption by employing an event study around a regulatory change allowing DCS listings in Hong Kong. We find negative market reactions around these regulatory discussions for firms already listed in Hong Kong, especially for firms in technology (tech) sectors. However, the market reaction turned positive for tech firms during Hong Kong’s first DCS listing. We identify two distinct channels that influenced shareholders’ perspectives on DCS: the competition channel, which dominated …
Riding Off Into The Sunset: Dual-Class Structure In The Age Of Unicorns Going Public, Hao Liang, Junho Park, Wei Zhang
Riding Off Into The Sunset: Dual-Class Structure In The Age Of Unicorns Going Public, Hao Liang, Junho Park, Wei Zhang
Research Collection Lee Kong Chian School Of Business
The increasing adoption of dual-class shares (DCS)—an ownership structure that gives corporate insiders greater voting power than other shareholders—among newly listed companies has raisedsignificant governance concerns. We investigate the decision to adopt the DCS structure and itsvalue implications in the recent U.S. IPOs. Using founder cultural traits and Silicon Valley lawfirms as instrumental variables, we find significant post-IPO outperformance by firms adopting DCSwith a sunset clause, especially incapacity-based sunset which stipulates that the DCS will ceaseafter founders’ death, incapacitation or departure, compared to non-DCS firms and DCS firms without sunsets. This outperformance is more pronounced for high-tech firms, after Google’s …
Bringing Excitement To Empirical Business Ethics Research: Thoughts On The Future Of Business Ethics, Mayowa T. Babalola, Matthijs Bal, Charles H. Cho, Lucia Garcia-Lorenzo, Omrane Guedhami, Hao Liang, Greg Shailer, Suzanne Van Gils
Bringing Excitement To Empirical Business Ethics Research: Thoughts On The Future Of Business Ethics, Mayowa T. Babalola, Matthijs Bal, Charles H. Cho, Lucia Garcia-Lorenzo, Omrane Guedhami, Hao Liang, Greg Shailer, Suzanne Van Gils
Research Collection Lee Kong Chian School Of Business
To commemorate 40 years since the founding of the Journal of Business Ethics, the editors-in-chief of the journal have invited the editors to provide commentaries on the future of business ethics. This essay comprises a selection of commentaries aimed at creating dialog around the theme Bringing Excitement to Empirical Business Ethics Research (inspired by the title of the commentary by Babalola and van Gils). These editors, considering the diversity of empirical approaches in business ethics, envisage a future in which quantitative business ethics research is more bold and innovative, as well as reflexive about its techniques, and dialog between quantitative …
From Market Making To Matchmaking: Does Bank Regulation Harm Market Liquidity?, Gideon Saar, Jian Sun, Ron Yang, Haoxiang Zhu
From Market Making To Matchmaking: Does Bank Regulation Harm Market Liquidity?, Gideon Saar, Jian Sun, Ron Yang, Haoxiang Zhu
Research Collection Lee Kong Chian School Of Business
Post-crisis bank regulations raised market-making costs for bank-affiliated dealers. We show that this can, somewhat surprisingly, improve overall investor welfare and reduce average transaction costs despite the increased cost of immediacy. Bank dealers in OTC markets optimize between two parallel trading mechanisms: market making and matchmaking. Bank regulations that increase market-making costs change the market structure by intensifying competitive pressure from non-bank dealers and incentivizing bank dealers to shift their business toward matchmaking. Thus, post-crisis bank regulations have the (unintended) benefit of replacing costly bank balance sheets with a more efficient form of financial intermediation.
Corporate Actions And The Manipulation Of Retail Investors In China: An Analysis Of Stock Splits, Sheridan Titman, Chi Shen Wei, Bin Zhao
Corporate Actions And The Manipulation Of Retail Investors In China: An Analysis Of Stock Splits, Sheridan Titman, Chi Shen Wei, Bin Zhao
Research Collection Lee Kong Chian School Of Business
We identify a group of “suspicious” firms that use stock splits, perhaps along with other activities, to artificially inflate their share prices. Following the initiation of suspicious splits, share prices temporarily increase, and subsequently decline below their presplit levels. Using account level data from the Shanghai Stock Exchange, we find that small retail investors acquire shares in firms initiating suspicious splits, while more sophisticated investors accumulate positions before suspicious split announcements and sell in the postsplit period. We also find that insiders sell large blocks of shares and obtain loans using company stock as collateral around the initiation of suspicious …
International Asset Pricing With Strategic Business Groups, Massimo Massa, Hong Zhang, Hong Zhang
International Asset Pricing With Strategic Business Groups, Massimo Massa, Hong Zhang, Hong Zhang
Research Collection Lee Kong Chian School Of Business
Firms in global markets often belong to business groups. We argue that this feature can have a profound influence on international asset pricing. In bad times, business groups may strategically reallocate risk across affiliated firms to protect core “central firms.” This strategic behavior induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel data set of worldwide ownership for 2002–2012, we find that central firms are better protected in bad times and that they earn relatively lower expected returns. Moreover, a centrality factor augments traditional models in explaining the cross section of international stock returns.
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 …
Physical Frictions And Digital Banking Adoption, Hyun Soo Choi, Roger Loh
Physical Frictions And Digital Banking Adoption, Hyun Soo Choi, Roger Loh
Research Collection Lee Kong Chian School Of Business
A behavioral literature suggests that minor frictions can elicit desirable behavior without obvious coercion. Using closures of ATMs in a densely populated city as an instrument for small frictions to physical banking access, we find that customers affected by ATM closures increase their usage of the bank’s digital platform. Other spillover effects of this adoption of financial technology include increases in point-of-sale (POS) transactions, electronic funds transfers, automatic bill payments and savings, and a reduction in cash usage. Our results show that minor frictions can help overcome the status-quo bias and facilitate significant behavior change.
Customer Concentration And Corporate Carbon Emissions, Saiying Deng, Tinghua Duan, Frank Weikai Li, Xiaoling Pu
Customer Concentration And Corporate Carbon Emissions, Saiying Deng, Tinghua Duan, Frank Weikai Li, Xiaoling Pu
Research Collection Lee Kong Chian School Of Business
This paper examines whether economic links with major corporate customers curb corporate carbon emissions. We show that supplier firms with a concentrated customer base have significantly lower carbon emissions. The baseline results are robust to alternative measures of carbon emissions and customer concentration, and various approaches that mitigate endogeneity concerns due to omitted variables and reverse causality. Moreover, the curbing effect of customer concentration on supplier carbon emissions is more pronounced in firms facing lower customer switching costs, with less (more) supplier (customer) bargaining power, fewer redeployable assets, operating in more carbon-intensive industries, and after the Paris Agreement of 2015. …
The Cryptocurrency Participation Puzzle, Ran Duchin, David H. Solomon, Jun Tu, Xi Wang
The Cryptocurrency Participation Puzzle, Ran Duchin, David H. Solomon, Jun Tu, Xi Wang
Research Collection Lee Kong Chian School Of Business
We show that ongoing zero portfolio weights in cryptocurrency are surprisingly difficult to generate in a standard Bayesian portfolio theory framework. With ten years of prior data, equity market investors would need very pessimistic priors on mean returns to justify never having bought cryptocurrency: -10.6% per month for Bitcoin, and -19.6% per month for a diversified portfolio of cryptocurrencies. Moreover, most priors that involve never purchasing cryptocurrency imply that investors should short cryptocurrency. Optimal absolute weights are generally small but non-trivial (1-5%), frequently positive, and fairly smooth despite returns being volatile. Under a wide range of priors, the certainty equivalent …
Exchange-Traded Funds And Real Investment, Constantinos Antoniou, Frank Weikai Li, Xuewen Liu, Avanidhar Subrahmanyam, Chengzhu Sun
Exchange-Traded Funds And Real Investment, Constantinos Antoniou, Frank Weikai Li, Xuewen Liu, Avanidhar Subrahmanyam, Chengzhu Sun
Research Collection Lee Kong Chian School Of Business
We investigate the link between exchange-traded funds and real investment. Cross-sectionally, higher ETF ownership is associated with an increased sensitivity of real investment to Tobin's q and a heightened ability of stock returns to forecast future earnings. Inclusion of stocks in industry ETFs enhances investment-q sensitivity and implies greater incorporation of earnings information into prices prior to public releases. Greater nonmarket ETF ownership leads to increased (reduced) reliance of real investment on own (peers') stock prices. Overall, the evidence is consistent with ETFs positively affecting real investment efficiency via greater flows of information.
Performance Of Smart Beta Etfs In The U.S. Market: 2009–2019, Chiyachantana N. Chiraphol, Chiraphol N. Chiyachantana, Kuan Yong David Ding, Tanakorn Likitapiwat
Performance Of Smart Beta Etfs In The U.S. Market: 2009–2019, Chiyachantana N. Chiraphol, Chiraphol N. Chiyachantana, Kuan Yong David Ding, Tanakorn Likitapiwat
Research Collection Lee Kong Chian School Of Business
Purpose: This paper empirically analyses the performance of smart beta exchange traded funds (ETFs) through the absolute return, relative return, and risk-adjusted return over the decade from 2009 to 2019.Methodology: Using a sample of smart beta ETFs in the U.S. stock market, we examine the components of the risk factors in a smart beta strategy. Results: Our results show that a smart beta strategy is not able to maintain a persistent performance over the period examined. Moreover, there is not a single year that smart beta ETFs could generate an abnormal return that is statistically significant. The evidence illustrates that …
Eradicating Malaria: Innovation Diffusion In The Face Of Grand Challenges, Han Jiang, Hao Liang, Dongning Yang
Eradicating Malaria: Innovation Diffusion In The Face Of Grand Challenges, Han Jiang, Hao Liang, Dongning Yang
Research Collection Lee Kong Chian School Of Business
What is the role of organizational innovation—beyond technological innovation—in an era of grand challenges concerning health, poverty, and economic development around the world? How is organizational innovation developed and diffused to influence resource allocation in the field? We conduct a qualitative case study by analyzing a Chinese pharmaceutical firm’s efforts to combat malaria in Africa over 10 years. Through documentation and extensive interviews, we study the role of innovation diffusion and resource allocation to address grand challenges in emerging markets with significant institutional voids. Our conceptual model delineates the different stages of innovation diffusion to show how organizations can draw …
Why Do U.S. Firms Invest Less Over Time?, Fangjian Fu, Sheng Huang, Rong Wang
Why Do U.S. Firms Invest Less Over Time?, Fangjian Fu, Sheng Huang, Rong Wang
Research Collection Lee Kong Chian School Of Business
Capital expenditures of U.S. public firms, relative to total assets, decrease by more than half from 1980 to 2020. The decline is pervasive across industries and firms of different characteristics and cannot be explained by the usual determinants of investment and many other seemingly plausible reasons. The decline is consistent with the transformation in production technology — firms rely more on intangible capital and less on fixed assets in production. Industry-level analyses yield supporting evidence. We observe similar declining trend in capital expenditure in other developed countries but not in most emerging markets.
Know Thyself: Access To Own Credit Report And The Retail Mortgage Market, Amit Kumar
Know Thyself: Access To Own Credit Report And The Retail Mortgage Market, Amit Kumar
Research Collection Lee Kong Chian School Of Business
Borrowers may misestimate their probability of mortgage approval in the absence of precise signals of creditworthiness. Credit reports, which contain such signals, became easily accessible for all U.S. consumers since 2005, while it was already the case in seven states. A difference-in-differences strategy exploiting this change shows that pool quality of mortgage applicants improved as a result—approvals increased, whereas subsequent delinquencies decreased. These findings are consistent with a mechanism where under-estimators enter the applicant pool and over-estimators drop out, because easier access to credit reports reduces misestimation of one’s own probability of mortgage approval. Additional findings rule out supply-driven explanations.
Do Large Gains Make Willing Sellers?, Dong Hong, Roger Loh, Mitch Warachka
Do Large Gains Make Willing Sellers?, Dong Hong, Roger Loh, Mitch Warachka
Research Collection Lee Kong Chian School Of Business
Using unique real estate data that allow for accurately-measured capital gains, we examine whether sell propensities depend on the magnitude of a seller's capital gain. We find that short-term sell propensities are flat over losses and increasing in gains. Consistent with their higher sell propensities, selling prices are lower for properties with larger gains. Large-sized short-term stock investments also have sell propensities that are flat over losses and increasing in gains, although the sell propensities of typical-sized short-term stock investments are V-shaped (Ben-David and Hirshleifer (2012)). Our findings provide empirical support for the realization utility theories of Barberis and Xiong …
Internal Capital Markets And Predictability In Complex Ownership Firms, Ran Chang, Angelica Gonzalez, Sergei Sarkissian, Jun Tu
Internal Capital Markets And Predictability In Complex Ownership Firms, Ran Chang, Angelica Gonzalez, Sergei Sarkissian, Jun Tu
Research Collection Lee Kong Chian School Of Business
Using global cross-firm ownership data, we find that both stock returns and cash-flow news of ownership-linked firms predict focal firm's returns for all types of ownership structures: subsidiary-parent, parent-subsidiary, subsidiary-subsidiary, and parent-parent. This effect, observed only after the establishment of cross-firm ownership, is not subsumed by focal firm or industry momentum, or alternative inter-firm relations, including customer-supplier links and shared analyst coverage. Our findings are explained by mispricing due to internal capital markets - a mechanism unique to complex ownership firms. Higher internal capital market activity among ownership-linked firms also induces larger investments and lower external financing of the focal …
Can Shorts Predict Returns? A Global Perspective, Ekkehart Boehmer, Zsuzsa R. Huszar, Yanchu Wang, Xiaoyan Zhang, Xinran Zhang
Can Shorts Predict Returns? A Global Perspective, Ekkehart Boehmer, Zsuzsa R. Huszar, Yanchu Wang, Xiaoyan Zhang, Xinran Zhang
Research Collection Lee Kong Chian School Of Business
Using multiple short-sale measures, we examine the predictive power of short sales for future stock returns in 38 countries from July 2006 to December 2014. We find that the days-to-cover ratio and the utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Our results display significant cross-country and cross-firm differences in the predictive power of alternative short-sale measures. The predictive power of shorts is stronger in countries with nonprohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.
A Black-Scholes User's Guide To The Bachelier Model, Jaehyuk Choi, Minsuk Kwak, Chyng Wen Tee, Yumeng Wang
A Black-Scholes User's Guide To The Bachelier Model, Jaehyuk Choi, Minsuk Kwak, Chyng Wen Tee, Yumeng Wang
Research Collection Lee Kong Chian School Of Business
To cope with the negative oil futures price caused by the COVID-19 recession, global commodity futures exchanges switched the option model from Black-Scholes to Bachelier in April 2020. This study reviews the literature on Bachelier's pioneering option pricing model and summarizes the practical results on volatility conversion, risk management, stochastic volatility, and barrier options pricing to facilitate the model transition. In particular, using the displaced Black-Scholes model as a model family with the Black-Scholes and Bachelier models as special cases, we not only connect the two models but also present a continuous spectrum of model choices.
Responsible Hedge Funds, Hao Liang, Lin Sun, Song Wee Melvyn Teo
Responsible Hedge Funds, Hao Liang, Lin Sun, Song Wee Melvyn Teo
Research Collection Lee Kong Chian School Of Business
Hedge funds that endorse the United Nations Principles for Responsible Investment (PRI) underperform other hedge funds after adjusting for risk but attract greater investor flows, accumulate more assets, and harvest greater fee revenues. Consistent with an agency explanation, the underperformance is driven by PRI signatories with low environmental, social, and governance (ESG) exposures and is greater for hedge funds with poor incentive alignment. To address endogeneity, we exploit regulatory reforms that enhance stewardship and show that the ESG exposure and relative performance of signatory funds improve post reforms. Our findings suggest that some hedge funds endorse responsible investment to pander …
Market Manipulation Around Seasoned Equity Offerings: Evidence Prior To The Global Financial Crisis Of 2007-2009, Charlie Charoenwong, Kuan Yong David Ding, Ping Wang
Market Manipulation Around Seasoned Equity Offerings: Evidence Prior To The Global Financial Crisis Of 2007-2009, Charlie Charoenwong, Kuan Yong David Ding, Ping Wang
Research Collection Lee Kong Chian School Of Business
Since the adoption of the SEC’s Rule 10b-21 in 1988, many researchers have been concerned over the effectiveness of short sales constraints in preventing manipulative trading in the derivatives market. We analyze whether options can be used as synthetic short sale instruments to manipulate stock prices before a seasoned equity offer. Due to the existence of strict short sales constraints in the equity market and market makers’ anticipation of manipulative trading, it would be very costly for a manipulator to drive stock prices down artificially either by short selling in the equity market or by using synthetic short sales in …
Inflation Expectations Of Households And The Upgrading Channel, Sumit Agarwal, Yeow Hwee Chua, Changcheng Song
Inflation Expectations Of Households And The Upgrading Channel, Sumit Agarwal, Yeow Hwee Chua, Changcheng Song
Research Collection Lee Kong Chian School Of Business
Motivated by the evidence that households purchased better quality goods across time in Singapore, we use a survey experiment to study the relationship between consumption upgrading and households’ beliefs about inflation. We find that providing price information on better-quality products will lead to higher inflation expectations. The effects on inflation expectations are smaller when price information on both higher- and lower-quality products is made available, suggesting that product replacement increases inflation expectations. Additional tests show that our results are not driven by mixing price with quality or numeracy. Our findings highlight the relationship between product replacement, product variety, and inflation …
Do Underwriters Short-Change Corporations Issuing Bonds?, Choo Yong, Jeremy Goh, Lisa Yang
Do Underwriters Short-Change Corporations Issuing Bonds?, Choo Yong, Jeremy Goh, Lisa Yang
Research Collection Lee Kong Chian School Of Business
We confirm prior evidence that bonds on average are offered at prices below their immediate post-offer secondary market prices. However, in cases where banks lead-manage their own bond offerings the underpricing is significantly less as compared to other non-self-marketed offerings. These findings are robust across various matched samples and selection models. Our results suggest that the bond offering process is characterized by substantive agency conflicts between shareholders of corporations (issuers) and underwriters.
Investor Sentiment And Paradigm Shifts In Equity Premium Forecasting, Liya Chu, Kai Li, Tony Xue-Zhong He, Jun Tu
Investor Sentiment And Paradigm Shifts In Equity Premium Forecasting, Liya Chu, Kai Li, Tony Xue-Zhong He, Jun Tu
Research Collection Lee Kong Chian School Of Business
This study investigates the impact of investor sentiment on excess equity return forecasting. A high (low) investor sentiment may weaken the connection between fundamental economic (behavioral-based non-fundamental) predictors and market returns. We find that although fundamental variables can be strong predictors when sentiment is low, they tend to lose their predictive power when investor sentiment is high. Non-fundamental predictors perform well during high-sentiment periods while their predictive ability deteriorates when investor sentiment is low. These paradigm shifts in equity return forecasting provide a key to understanding and resolving the lack of predictive power for both fundamental and non-fundamental variables debated …