A regression model for analysis of impact of earnings announcements on stock prices has been formulated. An equal-weight portfolio of 29 stocks that constituted DJI in Oct 2019 is considered within the range Jan 1999 – Sep 2019. It is found that out-performance around the earnings announcements is the highest when the portfolio is liquidated on the next day after announcements. Short holding periods have the highest average returns. In this case, however, the differences between returns around and outside earnings become statistically insignificant when the top 10% performers are dropped from the portfolio. Earnings surprises for individual DJI constituents are analyzed.
{"title":"Impact of Earnings Announcements for Dow Jones Index Stocks","authors":"A. Schmidt","doi":"10.2139/ssrn.3537660","DOIUrl":"https://doi.org/10.2139/ssrn.3537660","url":null,"abstract":"A regression model for analysis of impact of earnings announcements on stock prices has been formulated. An equal-weight portfolio of 29 stocks that constituted DJI in Oct 2019 is considered within the range Jan 1999 – Sep 2019. It is found that out-performance around the earnings announcements is the highest when the portfolio is liquidated on the next day after announcements. Short holding periods have the highest average returns. In this case, however, the differences between returns around and outside earnings become statistically insignificant when the top 10% performers are dropped from the portfolio. Earnings surprises for individual DJI constituents are analyzed.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"17 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134234585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using portfolios that are formed by directly sorting stocks based on their exposure to characteristics-based factors, earlier studies find that these beta-sorted portfolios have very large ex post factor beta spreads. However, the return spreads between high- and low-beta firms are typically tiny and insignificant. This study examines the time variation in the pricing of a large set of characteristics-based factors. Our evidence shows a striking two-regime pattern for most of the factor-beta-sorted portfolios: high-beta portfolios earn significantly higher returns than low-beta portfolios following high-sentiment periods, whereas the exact opposite occurs following low-sentiment periods. Remarkably, this two-regime pattern is completely reversed when macro-related factors, such as consumption growth and TFP growth, are used. The evidence based on mutual fund and hedge fund returns also confirms this two-regime pattern. Our findings suggest that the exposure to most of these characteristics-based factors is likely to be a proxy for the level of mispricing, rather than risk, especially during high-sentiment periods.
{"title":"Investor Sentiment and the Pricing of Characteristics-Based Factors","authors":"Zhuo Chen, Bibo Liu, Huijun Wang, Zhengwei Wang, Jianfeng Yu","doi":"10.2139/ssrn.3536063","DOIUrl":"https://doi.org/10.2139/ssrn.3536063","url":null,"abstract":"Using portfolios that are formed by directly sorting stocks based on their exposure to characteristics-based factors, earlier studies find that these beta-sorted portfolios have very large ex post factor beta spreads. However, the return spreads between high- and low-beta firms are typically tiny and insignificant. This study examines the time variation in the pricing of a large set of characteristics-based factors. Our evidence shows a striking two-regime pattern for most of the factor-beta-sorted portfolios: high-beta portfolios earn significantly higher returns than low-beta portfolios following high-sentiment periods, whereas the exact opposite occurs following low-sentiment periods. Remarkably, this two-regime pattern is completely reversed when macro-related factors, such as consumption growth and TFP growth, are used. The evidence based on mutual fund and hedge fund returns also confirms this two-regime pattern. Our findings suggest that the exposure to most of these characteristics-based factors is likely to be a proxy for the level of mispricing, rather than risk, especially during high-sentiment periods.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125516012","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
James Mirrlees (1971) launched the second wave of optimal tax models by suggesting a way to formalize the planner’s problem that deals explicitly with unobserved heterogeneity among taxpayers.So, in this paper optimal income taxation theories are subject of investigation following the classic paper in public finance by Mirrlees (1971). This provides analytical solutions for the second-best efficient tax system in presence of such an adverse selection. Until late 1990s, Mirrlees results were not closely connected to empirical tax studies and had little impact on tax policy recommendations. Next, the famous result Diamond-Mirrlees efficiency theorem Diamond-Mirrlees (1971a), Diamond-Mirrlees (1971b),has been reviewed. This theorem is important because it states that there should be no taxes on intermediate goods, and that private and public production should be based on same prices. Also, taxation should not violate efficiency of production. Solution to the Mankiw problem on the other hand states that small open economy, labor bears 100% of small capital income tax.
James Mirrlees(1971)提出了一种形式化计划者问题的方法，该问题明确处理纳税人之间未观察到的异质性，从而引发了第二波最优税收模型。因此，本文继米尔利斯(1971)的公共财政学经典论文之后，对最优所得税理论进行了研究。这为存在这种逆向选择的次优有效税收制度提供了分析解决方案。直到20世纪90年代末，Mirrlees的结果与实证税收研究并没有紧密联系，对税收政策建议的影响也很小。接下来，对著名的Diamond-Mirrlees效率定理Diamond-Mirrlees (1971a)， Diamond-Mirrlees (1971b)进行了回顾。这个定理很重要，因为它指出中间产品不应该征税，私人和公共生产应该基于相同的价格。此外，税收不应违背生产效率。另一方面，对曼昆问题的解决方案指出，小型开放经济，劳动力承担100%的小资本所得税。
{"title":"Critical Review of the (Second Wave) Optimal Tax Theories","authors":"Dushko Josheski, Tatjana Boshkov","doi":"10.2139/ssrn.3531287","DOIUrl":"https://doi.org/10.2139/ssrn.3531287","url":null,"abstract":"James Mirrlees (1971) launched the second wave of optimal tax models by suggesting a way to formalize the planner’s problem that deals explicitly with unobserved heterogeneity among taxpayers.So, in this paper optimal income taxation theories are subject of investigation following the classic paper in public finance by Mirrlees (1971). This provides analytical solutions for the second-best efficient tax system in presence of such an adverse selection. Until late 1990s, Mirrlees results were not closely connected to empirical tax studies and had little impact on tax policy recommendations. Next, the famous result Diamond-Mirrlees efficiency theorem Diamond-Mirrlees (1971a), Diamond-Mirrlees (1971b),has been reviewed. This theorem is important because it states that there should be no taxes on intermediate goods, and that private and public production should be based on same prices. Also, taxation should not violate efficiency of production. Solution to the Mankiw problem on the other hand states that small open economy, labor bears 100% of small capital income tax.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126555327","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Despite the ability to explain many puzzling phenomena in financial markets, direct tests of reference-dependent preferences of Kahneman and Tversky (1979, 1992) have mainly been conducted in experimental settings. We propose a novel test based on revealed preferences of real-world investors. Following Berk and van Binsbergen (2016) and Barber, Huang, and Odean (2016), we use the well-documented mutual fund flow-performance relationship to examine if investors have different preferences over gains and losses when they evaluate performance. We infer investors' utility function from mutual fund flows instead of structurally estimating it with experimental or field data. We find that investors place a greater emphasis on losses than gains. Moreover, institutional investors always penalize risk, yet retail investors are risk-averse only over gains but risk-seeking over losses, inline with reference-dependent preferences rather than global risk aversion.
{"title":"Reference-Dependent Preferences and Mutual Fund Flows","authors":"Nikolaos Artavanis, Asli Eksi","doi":"10.2139/ssrn.3434779","DOIUrl":"https://doi.org/10.2139/ssrn.3434779","url":null,"abstract":"Despite the ability to explain many puzzling phenomena in financial markets, direct tests of reference-dependent preferences of Kahneman and Tversky (1979, 1992) have mainly been conducted in experimental settings. We propose a novel test based on revealed preferences of real-world investors. Following Berk and van Binsbergen (2016) and Barber, Huang, and Odean (2016), we use the well-documented mutual fund flow-performance relationship to examine if investors have different preferences over gains and losses when they evaluate performance. We infer investors' utility function from mutual fund flows instead of structurally estimating it with experimental or field data. We find that investors place a greater emphasis on losses than gains. Moreover, institutional investors always penalize risk, yet retail investors are risk-averse only over gains but risk-seeking over losses, inline with reference-dependent preferences rather than global risk aversion.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"4 5","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120806993","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The following essay describes how laboratory experiments contribute to the understanding of financial markets and provide insights that cannot be gained through observational field data. Therefore, the findings of different experiments relating to the financial markets in three research areas are outlined, namely herd behavior, bubbles and market institutions. For each of the research areas, the analysis of two articles provides concrete examples of how experiments in these areas are beneficial.
{"title":"The Role of Laboratory Experiments for Better Understanding the Financial Markets","authors":"David M. Putz","doi":"10.2139/ssrn.3523886","DOIUrl":"https://doi.org/10.2139/ssrn.3523886","url":null,"abstract":"The following essay describes how laboratory experiments contribute to the understanding of financial markets and provide insights that cannot be gained through observational field data. Therefore, the findings of different experiments relating to the financial markets in three research areas are outlined, namely herd behavior, bubbles and market institutions. For each of the research areas, the analysis of two articles provides concrete examples of how experiments in these areas are beneficial.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128222379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the behavior of ensemble measures of financial markets during crash periods to see if they exhibit the behavior typical for second-order phase transitions. We find that during market crashes the order parameter (defined as the ensemble-average correlation) sharply increases and fluctuations (defined as ensemble volatility) exhibit a spike. In addition, the hysteresis effect is observed for correlations and drawdown (market drop) and a similar effect exists for trading volume and drawdown. These facts point that during crashes the markets not only resemble but undergo a second-order phase transition. Market phases can be identified on a volatility vs drawdown diagram as regions with high and low order parameter. While market dynamics has a self-coordinated nature, the two inputs on phase diagram are measurable directly from the markets.
{"title":"Self-Controlled Phase Transitions During Market Crashes and Price Corrections","authors":"Jack Sarkissian","doi":"10.2139/ssrn.3512362","DOIUrl":"https://doi.org/10.2139/ssrn.3512362","url":null,"abstract":"We study the behavior of ensemble measures of financial markets during crash periods to see if they exhibit the behavior typical for second-order phase transitions. We find that during market crashes the order parameter (defined as the ensemble-average correlation) sharply increases and fluctuations (defined as ensemble volatility) exhibit a spike. In addition, the hysteresis effect is observed for correlations and drawdown (market drop) and a similar effect exists for trading volume and drawdown. These facts point that during crashes the markets not only resemble but undergo a second-order phase transition. Market phases can be identified on a volatility vs drawdown diagram as regions with high and low order parameter. While market dynamics has a self-coordinated nature, the two inputs on phase diagram are measurable directly from the markets.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"101 3","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120842794","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper documents a highly downward-sloping security market line (SML) in China, which is more puzzling than the typical “flattened” SML in the US, and does not reconcile with existing theories of the low-beta anomaly. We show that investor overconfidence offers some promises in resolving the puzzle in China: In the time-series dimension, the slope of the SML becomes more “inverted” when investors get more overconfident. This dynamic overconfidence effect is intensified with biased self-attribution. As a general symptom of overconfidence in the cross section, high-beta stocks are also the mostly heavily traded. After accounting for trading volume, there is no longer the low-beta anomaly at both the firm and portfolio levels. Mutual fund evidence reinforces the view that institutional investors actively exploit the portfolio implications of a downward-sloping SML by shying away from high-beta stocks and betting on low-beta stocks for superior performance.
{"title":"Investor Overconfidence and the Security Market Line: New Evidence from China","authors":"Xing Han, Kai Li, Youwei Li","doi":"10.2139/ssrn.3284886","DOIUrl":"https://doi.org/10.2139/ssrn.3284886","url":null,"abstract":"This paper documents a highly downward-sloping security market line (SML) in China, which is more puzzling than the typical “flattened” SML in the US, and does not reconcile with existing theories of the low-beta anomaly. We show that investor overconfidence offers some promises in resolving the puzzle in China: In the time-series dimension, the slope of the SML becomes more “inverted” when investors get more overconfident. This dynamic overconfidence effect is intensified with biased self-attribution. As a general symptom of overconfidence in the cross section, high-beta stocks are also the mostly heavily traded. After accounting for trading volume, there is no longer the low-beta anomaly at both the firm and portfolio levels. Mutual fund evidence reinforces the view that institutional investors actively exploit the portfolio implications of a downward-sloping SML by shying away from high-beta stocks and betting on low-beta stocks for superior performance.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129909900","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent microeconomic evidence suggests that risk aversion is largely determined by the changes in the state of the economy and mostly insensitive to the fluctuations in idiosyncratic wealth. I propose a consumption-based asset pricing model that is consistent with this evidence and capable of explaining various stylized facts about the U.S. stock market. In the model, agents have a power-utility type instantaneous utility function whose curvature explicitly depends on a stationary macroeconomic state variable. The model can produce a high equity risk premium with a low, stable and wealth-insensitive relative risk aversion if the utility curvature is mildly countercyclical (i.e., if the agents are mildly "moody") and consumption is sufficiently smaller than a predetermined benchmark (i.e., if the agents are sufficiently "dissatisfied") at the steady state. It also gives a low and stable risk-free rate, procyclical price-dividend ratio, countercylical risk premium and price of risk, return predictability, an upward sloping real yield curve and a downward sloping equity term structure.
{"title":"Moody and Dissatisfied: A Possible Resolution of Asset Pricing Puzzles","authors":"M. Yönaç","doi":"10.2139/ssrn.3357171","DOIUrl":"https://doi.org/10.2139/ssrn.3357171","url":null,"abstract":"Recent microeconomic evidence suggests that risk aversion is largely determined by the changes in the state of the economy and mostly insensitive to the fluctuations in idiosyncratic wealth. I propose a consumption-based asset pricing model that is consistent with this evidence and capable of explaining various stylized facts about the U.S. stock market. In the model, agents have a power-utility type instantaneous utility function whose curvature explicitly depends on a stationary macroeconomic state variable. The model can produce a high equity risk premium with a low, stable and wealth-insensitive relative risk aversion if the utility curvature is mildly countercyclical (i.e., if the agents are mildly \"moody\") and consumption is sufficiently smaller than a predetermined benchmark (i.e., if the agents are sufficiently \"dissatisfied\") at the steady state. It also gives a low and stable risk-free rate, procyclical price-dividend ratio, countercylical risk premium and price of risk, return predictability, an upward sloping real yield curve and a downward sloping equity term structure.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"363 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123425864","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study shows that investor preference for positively skewed payoffs is a common driver of mispricing across a wide range of market anomalies. Specifically, skewness-loving investors overweight overpriced stocks in their portfolios and in doing so contribute to the anomalies. Using a combined measure of mispricing based on 11 prominent anomaly strategies, we find that stocks with higher skewness are significantly more mispriced than are those with lower skewness. A factor that captures skewness-related mispricing significantly improves the performance of conventional asset pricing models in explaining the abnormal returns of anomaly strategies.
{"title":"Skewness Preference and Market Anomalies","authors":"Alok Kumar, Mehrshad Motahari, R. Taffler","doi":"10.2139/ssrn.3166638","DOIUrl":"https://doi.org/10.2139/ssrn.3166638","url":null,"abstract":"This study shows that investor preference for positively skewed payoffs is a common driver of mispricing across a wide range of market anomalies. Specifically, skewness-loving investors overweight overpriced stocks in their portfolios and in doing so contribute to the anomalies. Using a combined measure of mispricing based on 11 prominent anomaly strategies, we find that stocks with higher skewness are significantly more mispriced than are those with lower skewness. A factor that captures skewness-related mispricing significantly improves the performance of conventional asset pricing models in explaining the abnormal returns of anomaly strategies.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126242873","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-11-01DOI: 10.35940/ijrte.c4727.118419
Marxia Oli Sigo
This research paper investigates the dynamic linkage, between three weather factors and two top stock Indices in India, namely, BSE SENSEX and NSE NIFTY. In order to study the weather factor on stock indices, daily weather data of Delhi and daily closing stock price of BSE SENSEX and NSE NIFTY, from January 1st 2001 to 31st December 2017, were collected and analyzed. The study found that the Delhi weather namely humidity influence BSE Sensex returns. The investing community may note the findings, for making intelligent investment decisions. The findings would be useful to investors, speculators and officials managing the Indian Securities Exchanges. This is the first empirical study testing the relationship between stock market returns and weather factors in the City of Delhi in India.
{"title":"An Empirical Note on Delhi Weather Effects in the Indian Stock Market","authors":"Marxia Oli Sigo","doi":"10.35940/ijrte.c4727.118419","DOIUrl":"https://doi.org/10.35940/ijrte.c4727.118419","url":null,"abstract":"This research paper investigates the dynamic linkage, between three weather factors and two top stock Indices in India, namely, BSE SENSEX and NSE NIFTY. In order to study the weather factor on stock indices, daily weather data of Delhi and daily closing stock price of BSE SENSEX and NSE NIFTY, from January 1st 2001 to 31st December 2017, were collected and analyzed. The study found that the Delhi weather namely humidity influence BSE Sensex returns. The investing community may note the findings, for making intelligent investment decisions. The findings would be useful to investors, speculators and officials managing the Indian Securities Exchanges. This is the first empirical study testing the relationship between stock market returns and weather factors in the City of Delhi in India.","PeriodicalId":365642,"journal":{"name":"ERN: Behavioral Finance (Microeconomics) (Topic)","volume":"61 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131043881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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