Working Papers

The Earnings Announcement Return Cycle

with Juhani Linnainmaa, September 2022


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?

with Juhani Linnainmaa and Guofu Zhou, September 2022

March 2022


We test a theory of two-expectations in asset pricing: investors separately form subjective beliefs on the cash flow level} and cash flow growth when valuing assets. Biases in the two beliefs create distinct forms of mispricing. Using 123 anomalies and analysts' earnings forecast term structure data, we find strong evidence for the separability of the two beliefs and quantify their importance for the cross-section of anomalies

Expectations, Intermediaries, and the Term Structure of Rental Supply

with Jiayin Hu, Shangchen Li and Zheng Zhang, September 2022

March 2022


Housing decisions depend on the supply of long-term rental housing, yet 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 in China, 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 cross-market spillover mechanism that affects housing stability, which can be generalized to understand the determinants of long-term capital supply. 

The Efficient Horizon of Expectations and Stock Prices

October 2021 (Previously titled "Delayed Alpha")


Investors' expectations of 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, March 2022

[Available soon]

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.



合作者:张峥,李尚宸; 2021年10月


合作者:胡佳胤,向昊天,黄北辰; 2021年8月







Chinese Working Papers