Working Papers

The Earnings Announcement Return Cycle

with Juhani Linnainmaa, August 2021

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Stocks earn negative abnormal returns before earnings announcements and positive after them. Analysts' forecasts, recommendations, and target prices follow the same pattern: analysts start optimistic after earnings announcements but grow pessimistic as the next ones draw near. Analysts' optimism appears to drive the high returns early in the cycle and firms' disclosures of bad news cause both the low returns and analysts' pessimism late in the cycle. The tug of war between analysts and firms significantly affects anomaly profits: strategies that trade for or against contrarian anomalies depending on where the firms are relative to announcing their earnings earn as large alphas as the original anomalies---despite being unconditionally anomaly neutral.

Which Expectation? Toward a Unified Framework of Expectations-Based Asset Pricing

March 2022

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I propose an expectation-based theory that unifies many cross-sectional anomalies. In the model, investors have sticky expectations on cash flow levels, and this interacts with growth extrapolations, to generate novel predictions. A new measure derived from the model forecasts contrarian profits, explains common factor premia, and well-times price momentum and reversal. The resultant trading strategies earn abnormal returns of 7% to 12% per year. Simulation and empirical results using 69 anomalies strongly support the model's additional predictions: (1) mispricing associated with growth (level) forecast error are persistent (transient); (2) ex-ante anomaly variables reliably predict the ex-post term structure of analyst forecast errors.

Expectations, Intermediaries, and the Term Structure of Rental Supply

March 2022

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Housing decisions depend critically on the supply of long-term rental housing, yet surprisingly few studies examine the determinants of this supply. Based on term structure theories of asset prices and extrapolative beliefs, we hypothesize that housing market conditions shape the term structure of rental supply. Using unique contract-level data between landlords, tenants, and a large rental agency, we show that growth in home prices, transaction volume, and rent significantly inhibit the supply of longer-term rental housing. Rental agencies increase this supply by financing renovation. Our findings uncover a novel cross-market spillover mechanism between the housing and rental markets, which has important implications for housing stability.

The Efficient Horizon of Expectations and Stock Prices

October 2021 (Previously titled "Delayed Alpha")

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Investors' expectations on firms' cash flow growth can be biased, yet we know little about how these biases and their asset pricing implications vary with forecast horizons. In this paper, I show that extreme expectations at all horizons beyond the current period inversely forecast abnormal stock returns, but some with a delay --- extreme expectations at long-horizons persist until they reach the imminent horizon, causing persistent mispricing. Consistent with managers' expectation management altering the efficient expectation horizon, the pattern is stronger after Regulation-FD. A model based on ``natural expectation'' by \cite{fuster2010natural} generates the short- and long-horizon forecast error dynamics that match the empirical patterns. Surprisingly, this extrapolative belief model also predicts underreation.

Economic Policy Transmission and Local Path Dependence

with Jiayin Hu, August 2021

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We examine the transmission efficiency of economic policies from central to local governments using hand-collected three-tier government reports from China. We find that local officials' political agendas are disproportionately shaped by the economic and political environment in the year when they take office. As a result, economic policies transmit better to and have a more lasting effect in cities with newly arrived governors. This political path dependence manifests into a cohort effect: local governors who assume office in the same year focus on a more similar set of policies going forward. Our paper provides fresh empirical evidence on the transmission mechanism of economic policies in a political hierarchy.

 

同口未必同声:行业研报、公司研报与分析师乐观偏差

合作者:张峥,李尚宸; 2021年10月

供给侧结构性改革下的企业破产实践——基于裁判文书的实证分析

合作者:胡佳胤,向昊天,黄北辰; 2021年8月

 

 

 

 

 

 

Chinese Working Papers