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Articles 1 - 16 of 16
Full-Text Articles in Portfolio and Security Analysis
Hidden Gems: Do Market Participants Respond To Performance Expectations Revealed In Compensation Disclosures?, C. Edward Fee, Zhi Li, Qiyuan Peng
Hidden Gems: Do Market Participants Respond To Performance Expectations Revealed In Compensation Disclosures?, C. Edward Fee, Zhi Li, Qiyuan Peng
Business Faculty Articles and Research
We find that a new compensation disclosure item on expected payouts from performance-based stock grants reveals unique information regarding future firm performance. Extracting inferred performance expectations from the disclosures, we find that firms disclosing the highest expected grant payout significantly outperform in ROA, Q, sales growth, and profit margin over the next two years, while those disclosing the lowest expected payout underperform. The embedded information is not captured by other information channels, such as managerial earnings guidance, 10-K sentiment, insider selling activities, unexplained CEO pay, and analyst forecasts. Investors and analysts do not fully incorporate the information and are later …
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 …
Joint News, Attention Spillover, And Market Returns Predictability, Li Guo, Lin Peng, Yubo Tao, Jun Tu
Joint News, Attention Spillover, And Market Returns Predictability, Li Guo, Lin Peng, Yubo Tao, Jun Tu
Research Collection Lee Kong Chian School Of Business
We analyze over 2.6 million news articles and propose a novel measure of joint news coverage of firms. The measure strongly and negatively predicts market returns, with a monthly R-squared of 3.93% in sample and 6.52% out of sample. The relation is causal, robust to existing predictors, and is especially strong when market uncertainty is high or when market frictions are large. At the firm level, joint news coverage is associated with a 20.3% increase in EDGAR downloads by new IPs from the investor bases of the other covered firms. Our evidence suggests that joint news triggers investor attention spillover …
Tracking Retail Investor Activity, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang, Xinran Zhang
Tracking Retail Investor Activity, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang, Xinran Zhang
Research Collection Lee Kong Chian School Of Business
We provide an easy method to identify marketable retail purchases and sales using recent, publicly available U.S. equity transactions data. Individual stocks with net buying by retail investors outperform stocks with negative imbalances by approximately 10 bps over the following week. Less than half of the predictive power of marketable retail order imbalance is attributable to order flow persistence, while the rest cannot be explained by contrarian trading (proxy for liquidity provision) or public news sentiment. There is suggestive, but only suggestive, evidence that retail marketable orders might contain firm-level information that is not yet incorporated into prices.
Are Disagreements Agreeable? Evidence From Information Aggregation, Dashan Huang, Jiangyuan Li, Liyao Wang
Are Disagreements Agreeable? Evidence From Information Aggregation, Dashan Huang, Jiangyuan Li, Liyao Wang
Research Collection Lee Kong Chian School Of Business
Disagreement measures are known to predict cross-sectional stock returns but fail to predict market returns. This paper proposes a partial least squares disagreement index by aggregating information across individual disagreement measures and shows that this index significantly predicts market returns both in- and out-of-sample. Consistent with the theory in Atmaz and Basak (2018), the disagreement index asymmetrically predicts market returns with greater power in high-sentiment periods, is positively associated with investor expectations of market returns, predicts market returns through a cash flow channel, and can explain the positive volume-volatility relationship.
Center Of Volume Mass: Does Options Trading Predict Stock Returns?, Gennaro Bernile, Fei Gao, Jianfeng Hu
Center Of Volume Mass: Does Options Trading Predict Stock Returns?, Gennaro Bernile, Fei Gao, Jianfeng Hu
Research Collection Lee Kong Chian School Of Business
We examine whether the distribution of trades along the set of strike prices of option contracts on the same stock contains information about underlying price discovery. We show that option traders' demand for delta exposure drives the volume-weighted average strike-spot price ratio (VWKS). In turn, we find that VWKS predicts underlying returns and anticipates the flow of fundamental information about the stock. The return predictability is greater but not limited to stocks with higher information asymmetries and arbitrage costs, and becomes stronger ahead of value relevant news. Overall, options trading appears to play an important informational role for underlying markets.
International Volatility Risk And Chinese Stock Return Predictability, Jian Chen, Fuwei Jiang, Yangshu Liu, Jun Tu
International Volatility Risk And Chinese Stock Return Predictability, Jian Chen, Fuwei Jiang, Yangshu Liu, Jun Tu
Research Collection Lee Kong Chian School Of Business
This paper investigates the predictive ability of international volatility risks for the daily Chinese stock market returns. We employ the innovations in implied volatility indexes of seven major international markets as our international volatility risk proxies. We find that international volatility risks are negatively associated with contemporaneous Chinese daily overnight stock returns, while positively forecast next-day Chinese daytime stock returns. The US volatility risk (ΔVIX) is particularly powerful in forecasting Chinese stock returns, and plays a dominant role relative to the other six international volatility measures. ΔVIX's forecasting power remains strong after controlling for Chinese domestic volatility and is robust …
The Limits Of The Market-Wide Limits Of Arbitrage: Insights From The Dynamics Of 100 Anomalies, Hieiko Jacobs
The Limits Of The Market-Wide Limits Of Arbitrage: Insights From The Dynamics Of 100 Anomalies, Hieiko Jacobs
Research Collection BNP Paribas Hedge Fund Centre
Are anomalies strongest when limits of arbitrage are widely considered to be greatest? We empirically explore this theoretically deducted prediction. We first identify, categorize, and replicate 100 anomalies in the cross-section of expected equity returns. We then comprehensively study their dynamic interaction with popular proxies for time-varying market-level arbitrage conditions. Our findings reveal a surprisingly weak role of commonly employed measures of market-wide arbitrage risks and constraints. Even though this “big picture” evidence is by no means conclusive, our findings might potentially be best interpreted as supporting the growing literature which uncovers some shortcomings of the limits to arbitrage argument.
An Analysis Of Bitcoin Market Efficiency Through Measures Of Short-Horizon Return Predictability And Market Liquidity, William L. Brown
An Analysis Of Bitcoin Market Efficiency Through Measures Of Short-Horizon Return Predictability And Market Liquidity, William L. Brown
CMC Senior Theses
Bitcoins have the potential to fundamentally change the way value is transferred globally. Their rapid adoption over the past four years has led many to consider the possible results of such a technology. To be a viable currency, however, it is imperative that the market for trading Bitcoins is efficient. By examining the changes in availability of predictable outsized returns and market liquidity over time, this paper examines historical Bitcoin market efficiency and establishes correlations between market liquidity, price predictability, and return data. The results provide insight into the turbulent nature of Bitcoin market efficiency over the past years, but …
Can Us Economic Variables Predict Chinese Stock Market?, Jeremy Goh, Fuwei Jiang, Jun Tu, Yuchen Wang
Can Us Economic Variables Predict Chinese Stock Market?, Jeremy Goh, Fuwei Jiang, Jun Tu, Yuchen Wang
Research Collection Lee Kong Chian School Of Business
In the last few decades, we observed a significant increase in global economic activities and these activities may have an impact on both China's economy and stock market. Given the potential impact, we empirically examine whether US economic variables are leading indicators of the Chinese stock market. Prior to China joining the World Trade Organization (WTO) in the end of 2001, we find no statistical relationship between US economic variables and the Chinese stock market returns. However, we find US economic variables have statistically significant predictive power for periods after China's admission into the WTO. In addition, we show 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 long-term analyst forecast errors. 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 along with downward and upward revisions in long-term forecasted earnings growth, respectively. Additional results indicate that investor inattention toward firm-level changes in long-term earnings growth is responsible for these risk-adjusted returns.
How Predictable Is The Chinese Stock Market?, Fuwei Jiang, David E. Rapach, Jack K. Strauss, Jun Tu
How Predictable Is The Chinese Stock Market?, Fuwei Jiang, David E. Rapach, Jack K. Strauss, Jun Tu
Research Collection Lee Kong Chian School Of Business
We analyze return predictability for the Chinese stock market, including the aggregate market portfolio and the components of the aggregate market, such as portfolios sorted on industry, size, book-to-market and ownership concentration. Considering a variety of economic variables as predictors, both in-sample and out-of-sample tests highlight significant predictability in the aggregate market portfolio of the Chinese stock market and substantial differences in return predictability across components. Among industry portfolios, Finance and insurance, Real estate, and Service exhibit the most predictability, while portfolios of small-cap and low ownership concentration firms also display considerable predictability. Two key findings provide economic explanations for …
How Predictable Is The Chinese Stock Market?, Fuwei Jiang
How Predictable Is The Chinese Stock Market?, Fuwei Jiang
Dissertations and Theses Collection (Open Access)
We analyze return predictability for the Chinese stock market, including the aggregate market portfolio and the components of the aggregate market, such as portfolios sorted on industry, size, book-to-market and ownership concentration. Considering a variety of economic variables as predictors, both in-sample and out-of-sample tests highlight significant predictability in the aggregate market portfolio of the Chinese stock market and substantial differences in return predictability across components. Among industry portfolios, Finance and insurance, Real estate, and Service exhibit the most predictability, while portfolios of small-cap and low ownership concentration firms also display considerable predictability. Two key findings provide economic explanations for …
Institutional Investors And Equity Returns: Are Short-Term Institutions Better Informed?, Xuemin (Sterling) Yan, Zhe Zhang
Institutional Investors And Equity Returns: Are Short-Term Institutions Better Informed?, Xuemin (Sterling) Yan, Zhe Zhang
Research Collection Lee Kong Chian School Of Business
We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions. Furthermore, short-term institutions' trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions' trading is also positively related to future earnings surprises. By contrast, long-term institutions' trading does not forecast future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.
Which Shorts Are Informed?, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang
Which Shorts Are Informed?, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang
Research Collection Lee Kong Chian School Of Business
We construct a long daily panel of short sales using proprietary NYSE order data. From 2000 to 2004, shorting accounts for more than 12.9% of NYSE volume, suggesting that shorting constraints are not widespread. As a group, these short sellers are well informed. Heavily shorted stocks underperform lightly shorted stocks by a risk-adjusted average of 1.16% over the following 20 trading days (15.6% annualized). Institutional nonprogram short sales are the most informative; stocks heavily shorted by institutions underperform by 1.43% the next month (19.6% annualized). The results indicate that, on average, short sellers are important contributors to efficient stock prices.
Style Effects In The Cross-Section Of Stock Returns, Melvyn Teo, Sung-Jun Woo
Style Effects In The Cross-Section Of Stock Returns, Melvyn Teo, Sung-Jun Woo
Research Collection Lee Kong Chian School Of Business
Using CRSP stock and mutual fund data, we find strong evidence for reversals at the style level (e.g., large value, small growth, etc.). There are significant excess and risk-adjusted returns for stocks in styles characterized by the worst past returns and net inflows. We also find evidence for momentum and positive feedback trading at the style level. These value and momentum effects are driven neither by fundamental risk nor by stock-level reversals and momentum. Taken together, the results are consistent with the style-level positive feedback trading model of Barberis and Shleifer (2003).