Corporate policies of republican managers
| Authors | Hutton, Jiang and Kumar |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2015 |
| Type | Published Paper |
| Abstract | We demonstrate that personal political preferences of corporate managers influence corporate policies. Specifically, Republican managers who are likely to have conservative personal ideologies adopt and maintain more conservative corporate policies. Those firms have lower levels of corporate debt, lower capital and research and development (R&D) expenditures, less risky investments, but higher profitability. Using the 9/11 terrorist attacks and Sept. 2008 Lehman Brothers bankruptcy as natural experiments, we demonstrate that investment policies of Republican managers became more conservative following these exogenous uncertainty-increasing events. Furthermore, around chief executive officer (CEO) turnovers, including CEO deaths, firm leverage policy becomes more conservative when managerial conservatism increases. |
| Keywords | Political ideology, manager's behaviors, corporate policy |
| URL | https://doi.org/10.1017/S0022109014000702 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
Wisdom of crowds: The value of stock opinions transmitted through social media
| Authors | Chen, De, Hu, Hwang |
| Journal | The Review of Financial Studies |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Social media has become a popular venue for individuals to share the results of their own analysis on financial securities. This paper investigates the extent to which investor opinions transmitted through social media predict future stock returns and earnings surprises. We conduct textual analysis of articles published on one of the most popular social media platforms for investors in the United States. We also consider the readers' perspective as inferred via commentaries written in response to these articles. We find that the views expressed in both articles and commentaries predict future stock returns and earnings surprises. |
| URL | https://academic.oup.com/rfs/article-abstract/27/5/1367/1581938 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Media and Textual Analysis |
Deviations from norms and informed trading
| Authors | Kumar, Page |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2014 |
| Type | Published Paper |
| Abstract | Investment managers are subject to personal and institutional norms that can constrain their investment choices. We conjecture that norm-constrained investors deviate from such norms only when they have compelling information, and we predict that deviating investments earn relatively high abnormal returns ex post. Consistent with our conjecture, we find that institutions averse to holding lottery-like stocks or sin stocks earn relatively high abnormal returns when they choose to hold such stocks. We find similar but weaker results for deviations from broader style categories. Overall, our evidence indicates that deviations from established institutional or social norms signal informed investing. |
| Keywords | Investment manager behavior, social norms, informed investing, portfolio performance |
| URL | https://doi.org/10.1017/S0022109014000519 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Friends with money
| Authors | Engelberg, Gao, Parsons |
| Journal | Journal of Financial Economics |
| Year | 2012 |
| Type | Published Paper |
| Abstract | When banks and firms are connected through interpersonal linkages - such as their respective management having attended college or previously worked together - interest rates are markedly reduced, comparable with single shifts in credit ratings. These rate concessions do not appear to reflect sweetheart deals. Subsequent firm performance, such as future credit ratings or stock returns, improves following a connected deal, suggesting that social networks lead to either better information flow or better monitoring. |
| Keywords | Asymmetric information, bank lending, cost of debt, social connections, lending outcomes |
| URL | https://doi.org/10.1016/j.jfineco.2011.08.003 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior | Social Network Structure |
Do internet stock message boards influence trading? Evidence from heavily discussed stocks with no fundamental news
| Authors | Sabherwal, Sarkar, Zhang |
| Journal | Journal of Business Finance & Accounting |
| Year | 2012 |
| Type | Published Paper |
| Abstract | This study extends the literature on the information content of stock message boards. To better understand the effect of online postings on trading activities and reduce the error due to stocks with small message board followings, we examine stocks with no fundamental news and high message posting activity. Such stocks tend to be of small firms with weak financials. For those stocks, we find a two-day pump followed by a two-day dump manipulation pattern among online traders, which suggests that an online stock message board can be used as a herding device to temporarily drive up stock prices. We also find that online traders' credit-weighted sentiment index, but not the number of postings, is positively associated with contemporaneous return and negatively predicts the return next day and two days later. Also, absolute sentiment is negatively related with contemporaneous and next day's intraday volatility and positively related with the proportion of volume in small-sized trades. We conclude that message board sentiment is an important predictor of trading-related activities. |
| Keywords | Internet stock message board, online trading, investor sentiment, noise trader, naive bayesian, text classifier |
| URL | https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-5957.2011.02258.x |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Media and Textual Analysis |
Religious beliefs, gambling attitudes, and financial market outcomes
| Authors | Kumar, Page, Spalt |
| Journal | Journal of Financial Economics |
| Year | 2011 |
| Type | Published Paper |
| Abstract | This study investigates whether geographic variation in religion-induced gambling norms affects aggregate market outcomes. We conjecture that gambling propensity would be stronger in regions with higher concentrations of Catholics relative to Protestants. Consistent with our conjecture, we show that in regions with higher Catholic-Protestant ratios, investors exhibit a stronger propensity to hold lottery-type stocks, broad-based employee stock option plans are more popular, the initial day return following an initial public offering is higher, and the magnitude of the negative lottery-stock premium is larger. Collectively, these results indicate that religion-induced gambling attitudes impact investors' portfolio choices, corporate decisions, and stock returns. |
| Keywords | Gambling, religion, institutional investors, employee stock option plans, IPOs |
| URL | https://doi.org/10.1016/j.jfineco.2011.07.001 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Manager / Firm Behavior |
Individualism and momentum around the world
| Authors | Chui, Titman, Wei |
| Journal | Journal of Finance |
| Year | 2010 |
| Type | Published Paper |
| Abstract | This paper examines how cultural differences influence the returns of momentum strategies. Crossâcountry cultural differences are measured with an individualism index developed by Hofstede (2001), which is related to overconfidence and selfâattribution bias. We find that individualism is positively associated with trading volume and volatility, as well as to the magnitude of momentum profits. Momentum profits are also positively related to analyst forecast dispersion, transaction costs, and the familiarity of the market to foreigners, and negatively related to firm size and volatility. However, the addition of these and other variables does not dampen the relation between individualism and momentum profits. |
| Keywords | cultural differences, momentum strategy, stock return, behavioral finance |
| URL | https://doi.org/10.1111/j.1540-6261.2009.01532.x |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) |
Individualism and momentum around the world
| Authors | Chui, Titman, Wei |
| Journal | Journal of Finance |
| Year | 2010 |
| Type | Published Paper |
| Abstract | This paper examines how cultural differences influence the returns of momentum strategies. Cross-country cultural differences are measured with an individualism index developed by Hofstede (2001), which is related to overconfidence and self-attribution bias. We find that individualism is positively associated with trading volume and volatility, as well as to the magnitude of momentum profits. Momentum profits are also positively related to analyst forecast dispersion, transaction costs, and the familiarity of the market to foreigners, and negatively related to firm size and volatility. However, the addition of these and other variables does not dampen the relation between individualism and momentum profits. |
| Keywords | Cultural differences, momentum strategy, asset pricing, behavioral finance |
| URL | https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2009.01532.x |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
Mutual fund attributes and investor behavior
| Authors | Bollen |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2009 |
| Type | Published Paper |
| Abstract | I study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive. |
| Keywords | Mutual fund, social responsibility, cash flow, investor behavior, investor utility |
| URL | https://doi.org/10.1017/S0022109000004142 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) |
The small world of investing: Board connections and mutual fund returns
| Authors | Cohen, Frazzini, Malloy |
| Journal | Journal of Political Economy |
| Year | 2008 |
| Type | Published Paper |
| Abstract | This paper uses social networks to identify information transfer in security markets. We focus on connections between mutual fund managers and corporate board members via shared education networks. We find that portfolio managers place larger bets on connected firms and perform significantly better on these holdings relative to their nonconnected holdings. A replicating portfolio of connected stocks outperforms nonconnected stocks by up to 7.8 percent per year. Returns are concentrated around corporate news announcements, consistent with portfolio managers gaining an informational advantage through the education networks. Our results suggest that social networks may be important mechanisms for information flow into asset prices. |
| URL | https://doi.org/10.1086/592415 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) |
The effect of socially activist investment policies on the financial markets: Evidence from the South African boycott
| Authors | Teoh, Welch, Wazzan |
| Journal | Journal of Business |
| Year | 1999 |
| Type | Published Paper |
| Abstract | We study the most important legislative and shareholder boycott to date, the boycott of South Africa's apartheid regime, and find that corporate involvement with South Africa was so small that the announcement of legislative/shareholder pressure or voluntary corporate divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the publicity of the boycott and the multitude of divesting companies, political pressure had little visible effect on the financial markets. |
| Keywords | Boycott, shareholder pressure, corporate divestment, firm valuation |
| URL | https://doi.org/10.1086/209602 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
The socio-economic dynamics of speculative markets: Interacting agents, chaos, and the fat tails of return distributions
| Authors | Lux |
| Journal | Journal of economic behavior & organization |
| Year | 1998 |
| Type | Published Paper |
| Abstract | This paper develops a model of the social and economic interaction of speculators in a securities or foreign exchange market. Both chartist and fundamentalist strategies are pursued by traders. The formalization of chartists behavior combines elements of mimetic contagion and trend chasing leading to waves of optimism or pessimism. Furthermore, changes of strategies from chartist to fundamentalist behavior and vice versa occur because speculators compare the performance of both strategies. The dynamic system under study encompasses the time development of the distribution of attitudes among traders as well as price adjustment. Chaotic attractors are found within a broad range of parameter values. The distributions of returns derived from chaotic trajectories of the model share important characteristics of empirical data: they exhibit high peaks around the mean as well as fat tails (leptokurtosis) and become less leptokurtotic under time aggregation. |
| Keywords | Herd behavior, bubbles, leptokurtosis |
| URL | https://www.sciencedirect.com/science/article/abs/pii/S0167268197000887 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Stock prices and social dynamics
| Authors | Shiller, Fischer, Friedman |
| Journal | Brookings papers on economic activity |
| Year | 1984 |
| Type | Published Paper |
| Keywords | Social movements, social psychology, group pressure, fashions, fads, stock prices |
| URL | https://www.jstor.org/stable/2534436 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Theory |