FINANCIAL REVIEW最新文献

We show that option traders suffer from the anchoring effect induced by the stock price's 52-week high or low. Specifically, (1) trading of all options decreases as the stock price approaches its 52-week high or low, (2) the buy–sell imbalance for calls decreases and that for puts increases as the stock price approaches its 52-week high, and the opposite occurs as the stock price approaches its 52-week low, and (3) the subsequent delta-hedged option returns for both calls and puts are higher as the stock price approaches its 52-week extreme.

This paper examines whether foreign investors (FIs) affect the information production of analysts. Based on China's stock market, we find that FIs significantly reduce analysts’ coverage. Such negative association is more pronounced in firms with a high level of governance and information disclosure and varies with analyst characteristics. We also identify two possible economic mechanisms: the information channel and the governance channel. Further tests suggest that as FIs crowd out analysts, the number of research reports and brokerage site visits decreased, but analyst forecast accuracy improved, indicating that the demand and supply of information are generally in equilibrium. We further address the endogeneity issue using a change-on-change analysis and a quasi-natural experiment, the Shanghai–Hong Kong Stock Connect (S-HKSC), and the results still hold. Overall, our results present evidence of potential information production by FIs, providing policy implications and highlighting the positive effect of China's open-door policy in capital markets.

Recent studies show that most financial market anomalies exhibit a momentum effect. Based on two datasets, (i) an original 22-factor sample and (ii) a more comprehensive 187-factor sample, we find that factor momentum effect is weak at the individual factor level. In both samples, only about 22%– 27% of the factors exhibit strong return continuation and dominate the factor momentum portfolio while the remaining factors do not. The factor momentum strategies do not outperform the corresponding long-only strategies in either sample. The choice of factors affects the ability of factor momentum to explain individual stock momentum.

Utilizing a unique daily data set, we examine how the covering of margin positions affects earnings announcement returns in the Chinese stock market dominated by retail traders. Unlike previous research on forced covering during price crashes, we propose that margin interest acts as a built-in supply and find that intensive covering of margin positions pushes down stock prices during earnings announcements of extreme good news. The release of built-in supply leads to stronger post-earnings-announcement drift (PEAD) after good news compared with that after bad news, consistent with investors’ tendency to realize profits after a gain under the disposition effect.

We find strong disagreements between hedge funds and other institutions in their common stock trades are twice as likely as agreements. Overall success of hedge funds’ trades and poor performance of non-hedge funds’ trades are both confined to disagreement stocks. Although hedge funds are commonly positive feedback traders, they are neither positive nor negative feedback traders for stocks heavily sold by other institutions. Hedge funds also depend less on earnings news. Our findings highlight the importance of disagreement in studying the performance of institutional investors’ trades and are consistent with the notion that skilled investors rely less on public information.

This research investigates the relation between corporate blockholders and firm financial leverage. Corporate blockholders—nonfinancial firms who hold more than five percent equity in another company—might affect firm policies through their business relations, monitoring, or expropriations. I find that corporate block ownership is negatively related to the target firm's leverage. Moreover, the negative association between corporate blocks and leverage becomes stronger when these investors have greater board representation and when the firm has higher agency costs. Overall, my findings suggest that corporate blockholders play an important monitoring role and can substitute for other monitoring mechanisms, including leverage

Highly sophisticated institutional investors are generally not profitable when trading around share repurchase announcements because they are pitted against better-informed entities such as the firm and its insiders. The firm and its insiders know the announcement's intention and timing and enjoy regulatory exemptions regarding the timing and pricing of repurchase implementation or lack thereof. Institutions do not have the same advantages or information ex ante, but they do have access to the trades of insiders 2 days after the transaction date. We find that some institutions are profitable but only when insiders’ buying signal matches the firm's repurchase signal.

We investigate changes in US market sentiment using structural break analysis over a period of five decades. We show that investor sentiment was trending and nonstationary from 1965 to 2001, a period associated with numerous crashes. Since 2001, sentiment has been substantially more mean reverting, implying the diminished effect of noise investors and their associated mispricing. We illustrate how these changes in sentiment persistence affect equity anomalies and assess the predictive power of sentiment on short-run returns when regime changes are considered. Our findings suggest that the presence of sentiment-driven investors and their market impact is significantly time-variant.

We document the recent rise in the side-by-side (SBS) management of mutual funds and actively managed ETFs (AMETFs). Although these funds are run in a SBS manner, only 21% share an investment objective code. This relationship is started by families with more ETF experience and is not used to reward “star” managers. On average, mutual funds with SBS AMETFs perform similarly to comparable funds after SBS formation; however, their flows fall when pairs share the same investment objective. We find evidence of both a substitution effect and conflicts of interest between SBS funds, depending on the contracting and organizational structures.

An emerging literature shows that investors are sensitive to mutual fund names. Using a sample of US equity funds over the period 1993–2017, we provide evidence that funds with names that are closer to those of their families attract more flows and display a stronger performance-flow relationship. This name bias is more persistent among old and large fund families and in retail funds. Our results are in line with the literature on social biases and costly searches and show that seemingly innocuous differences in fund attributes, such as fund names, can translate into significant differences in investor decisions.