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Author: Geoffrey A. Tate
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 179
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Author: Geoffrey A. Tate
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 179
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Author: Tomas Hernan Reyes Torres
Publisher:
ISBN:
Category :
Languages : en
Pages : 85
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This dissertation examines the factors that influence investors' attention to the stock market and the relationship that exists among attention and real output variables including stock returns, trading volume, and volatility. Traditional asset pricing models assume that information is effortlessly obtained and instantaneously incorporated into pricing. This assumption requires that investors devote sufficient attention to the asset, and ignores the existence of various channels through which public information is disseminated. In reality, attention is a scarce cognitive resource which is related to the effort that investors must expend to obtain information; the implications of this contingency of attention on these limitations have been remarkably under-researched in the past. In the first chapter of this study, I familiarize readers with Google Trends data and explain why such data is a better source to proxy for attention than the measures previously used in the literature. Next, utilizing this data, I describe how to measure investors' attention with regard to M\&A announcements, and show that attention is not instantaneous with the release of information, but is, instead, spread over a period surrounding the announcement. Retail investors pay attention and demand information about a firm as the announcement date approaches, during the announcement, and for days afterward. Finally, I present three aggregate measures of attention in the stock market, which are also based on search volume from Google. After constructing these measures, I study how they correlate with, but differ from, existing proxies of attention. In the second chapter, I consider whether limited attention explains the announcement effect bias found in the M\&A literature concerning merger and acquisition announcements. More specifically, I ask: How does variation in investors' attention affect the capital market response to M\&A announcements? To answer this question I rely on the measure for attention to M\&A announcements described in the previous chapter and find that high abnormal attention on the day of announcement predicts high adjusted abnormal returns the day after. This effect is strongest among firms with high standard deviations and betas, and it partially reverses over the following months. The third chapter argues that negative stock market performance attracts more attention from retail investors than comparable positive performance. Specifically, I rely on the three aggregate measures of attention in the stock market to test and confirm the hypothesis that retail investors pay more attention to negative rather than positive extreme returns. Empirical results strongly support that with respect to stock returns investors display this negativity bias in attention allocation. Across all specifications, lagged negative extreme returns are stronger predictors than positive extreme returns of high attention at the stock and market level. I rule out that negative returns are stronger simply because they are more unusual or because negative and positive returns are not symmetrical events to stockholders.
Author: Lingbo Shen
Publisher:
ISBN: 9789056686833
Category :
Languages : en
Pages : 0
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Author: Cagri Berk Onuk
Publisher:
ISBN:
Category :
Languages : en
Pages : 130
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The two essays in my dissertation are broadly related to the behavior and decision-making of firm managers and directors, and how those variables are associated with firm outcomes and firms' relationship with investors. The first essay examines the disagreement within the executive team. The model shows the negative effect of disagreement on firm outcomes via executives' reduced effort and the positive effect via decision enhancement. In a novel manner, I identify disagreement through information-based insider trades in opposing directions. The outcome I analyze is firm investments including capital expenditures, acquisitions, and R&D expenses. I uncover negative effects of disagreement on capital expenditures, which is statistically and economically significant. Decision enhancing effects are measured as reduction in a firm's tendency to overinvest, but the results are weaker. Disagreement also hurts firm valuation especially when firms need quick decisions. Overall, disagreement is found to have more harmful than beneficial effects on firms. The second essay, coauthored with Orhan Erdem, examines the effect of piety on individual investor and corporate decision-making, and on the interactions between the two types of agents. We use Turkey as our experimental setting, where piety is likely to have an important effect on financial outcomes due to the country's unique political and religious background. We have proprietary individual investor trading data for a random sample of 25,000 investors, and importantly, we have a number of strong identifiers for investor piety. One of them is a binary variable that indicates whether investors are trading through an Islamic brokerage house. Similarly, we have a few strong variables capturing firm piety. One such variable identifies whether firm executives are affiliated with a secular or a conservative executive club. Our results indicate that religious investors display conservative trading behavior, in particular, they display less overconfidence and higher local bias. Results on firms indicate that apparently religious firms grow their assets faster and are highly valued but have lower operating profitability. We also find that upon events that stir religious sentiment in the country, conservative investors increase their holdings of apparently religious firms.
Author: Bradley J. Cannon
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 311
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This dissertation consists of three chapters that study how psychology impacts stock prices and how stock prices then impact corporate decisions. In the first chapter, I study whether a firm’s investment responds to the stock valuations of other firms headquartered nearby. I document a positive relation between a firm’s investment and the valuation of neighboring firms. This relation is stronger among financially constrained firms and is robust to controlling for the actual investment of other firms in the region. These findings are difficult to reconcile with traditional theories that link investment opportunities to firm valuations, but instead suggest that the ability of firms to raise external finance rises and falls with the stock valuations of other firms located nearby. Consistent with this explanation, I document that financially constrained firms issue more debt and receive more trade credit when neighboring firms have high stock valuations. In the second chapter, I test models of return extrapolation in the cross-section of stock returns. Return extrapolation is a biased belief structure that has received considerable attention because of its ability to generate prominent empirical findings in the asset pricing literature, while also being able to match investor beliefs. I document that return extrapolation is not uniform across firms but is instead more prevalent among firms that do not pay dividends (capital-gain firms). Specifically, analyst return expectations are positively related to past annual returns for capital-gain firms but show no relation among dividend-paying firms. I exploit this difference in extrapolative expectations to test asset pricing predictions stemming from models of return extrapolation. Consistent with return extrapolation models, I show that the value premium and long-term reversal are stronger among capital-gain firms. Momentum, however, is stronger among dividend-paying firms and, consequently, does not appear to be a result of return extrapolation. In the third chapter, co-authored with Hannes Mohrschladt, we test whether reference prices impact how investors respond to news. When current prices are farther from a reference price, investors react more strongly to news. We first document that individual investors are more (less) likely to sell a stock following bad (good) news when the stock's trading price is farther from the investor's purchase price. Motivated by this micro-level evidence, we construct a stock-level measure to capture the distance between a stock's trading price and its purchase price for the average investor. We provide evidence that this distance from purchase price produces a substantial amount of cross-sectional variation in the degree to which stocks over- or underreact to news. Stocks trading farthest from their purchase price react more strongly to news than stocks trading near their purchase price. Consistent with relative overreaction, stocks trading farthest from their purchase price also exhibit greater return reversal following news days. We document that a cross-sectional strategy exploiting these return patterns earns a monthly alpha of 0.93%. These findings are distinct from alternative explanations related to size, illiquidity, and volatility. Our evidence instead suggests that reference prices have a meaningful impact on how investors respond to news.
Author: Hui Zheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 186
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This dissertation explores the extent to which managerial overconfidence affects corporate decisions. This analysis includes three essays, which address a wide range of corporate decisions including financing, investment, acquisition, innovation, liquidity management and advertising decisions. The first essay introduces a fine-tuned test of the relationship between managerial overconfidence and corporate decisions by taking the chief financial officer (CFO) overconfidence effect into account. Ex-ante, I identify financial policies and non-financial policies such as investment, innovation and acquisition as the primary managerial duties of CFOs and chief executive officers (CEOs) respectively. I construct overconfidence measures for both CEOs and CFOs and test the impact of CEO and CFO overconfidence, both on financial decisions and on nonfinancial decisions. Based on a sample of 1,173 S & P 1500 firms, I find that financial policies are primarily affected by CFO overconfidence while only CEO overconfidence affects nonfinancial decisions. My findings demonstrate that managerial biases affect corporate decisions and managerial duties shape the ways in which top managers influence corporate policies. The second essay investigates how overconfident CEOs allocate resources toward innovation activities. It argues that overconfident CEOs tend to have greater innovation input. To finance innovation, they save more cash out of the cash flow and spend more on innovation when the cash flow is high. Results from an empirical analysis of 1,015 S & P 1500 firms support this argument. Moreover, based on a series of financial constraint measurements, the effect of CEO overconfidence on liquidity management is found to be more pronounced in financially constrained firms and in highly innovative firms, but not in firms without financial constraints. With regards to innovation performance, overconfident CEOs tend to have more patents, but the overall quality of their patents is not significantly better than that of rational CEOs. The third essay introduces a simple model of firm advertising behavior in monopolistic competition industries and applies it to the situation of managerial overconfidence. The model shows that the optimal advertising to sales ratio is determined by both firm advertising competency and consumer preference. Overconfident CEOs are more willing to use advertising as a means to convey the quality of their firms and products. Such overestimation of the effects of advertising by overconfident CEOs will result in overspending on advertising. When financially constrained, an overconfident CEO's tendency to overspend will be curbed to some extent, but his amount of advertising will increase with cash flows. An empirical analysis of 654 S & P 1500 firms supports these predictions. The distorted effect of managerial overconfidence is more prominent when firms are financially constrained and when the overconfidence measure is continuous.
Author: Mi Shen
Publisher:
ISBN:
Category :
Languages : en
Pages : 174
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This dissertation examines the behavioral traits of business executives that lead to financial misconduct. The first essay investigates whether executives act more honestly when ethical considerations are made to stand out in an obvious way. In behavioral experiments, individuals are less likely to cheat when the saliency of dishonesty is increased (Mazar et al. 2008; Gino et al. 2009). We test this hypothesis in a real world setting by treating news about high-profile political scandals as shocks to the salience of unethical/illegal behavior. Analyzing corporate insiders' stock trading activity, we find evidence of a reduction in inappropriate behavior during these periods. Insiders' stock sales are less profitable and they are less likely to sell stock ahead of large price declines, suggesting less illegal insider trading. The results are concentrated in months with high levels of local media attention to political scandals, supporting an interpretation that the salience of these events affects insiders' behavior. The relation is also stronger when an executives' firm is aligned politically with the accused politician, suggesting that a scandal is more salient to “in-group” executives. However, the behavioral changes appear to be largely transitory and evidence of suspect trading resumes in subsequent years. The second essay examines the effect of envy on executive misbehavior. We provide evidence that envy can lead to executive misbehavior in the form of insider trading. Insiders at underperforming firms headquartered where more other firms are performing well demonstrate greater evidence of informed insider trading. Their stock trades generate higher abnormal returns, and they are more likely to sell stock ahead of a large price decline. We find similar evidence of profitable insider sales when CEOs suffer large pay gaps from their local peers. Envy motivated trading is more apparent in locations where household give less to charities, which may indicate higher levels of greed on average.
Author: Camelia M. Kuhnen
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 216
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Author: Thérèse Lind
Publisher: Linköping University Electronic Press
ISBN: 9176850609
Category :
Languages : en
Pages : 27
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I wrote this thesis to create a better understanding of how individual characteristics influence our feelings, our behavior and our way of interpreting information. My focus is on financial behavior and financial information, however I also consider a political context. I investigate the (usually) enabling abilities of financial literacy and numeracy. I also consider impediments such as stereotype threat and motivated reasoning, which can prevent people from engaging in certain behaviors or from interpreting information objectively. Both processes stem from valued beliefs and psychological foundations, consequently peoples’ efforts, decisions, and evaluations are based on them. The first essay, “Competence, confidence, and gender: The role of perceived and actual financial literacy in household finance,” broadens our understanding of the benefits of financial competence. I contrast perceived and actual levels of financial literacy, and consider the role of numeracy and cognitive reflective ability. I conclude that perceived and actual levels of financial literacy positively affect behavior and wellbeing; however, perceived financial literacy more so than actual financial literacy. No such effect is observed for numeric ability and cognitive reflection. Furthermore, women are more anxious about financial matters even though they tend to engage more frequently in the considered financial behaviors. The second essay, “Threatening finance? Examining the gender gap in financial literacy,” continues my exploration of the relationship between gender and financial literacy. In a series of studies, I investigate whether the observed gender gap in financial literacy can be identified in nonnumerical contexts, if it can be associated with confidence in financial matters, and if it can be attributed to stereotype threat, which posits that inbuilt prejudices about gender and finance undermine women’s performance of tasks that involve finance. The results show that the observed gender gap in financial literacy is robust even in nonnumerical financial contexts and suggest that a stereotype threat for women in the financial domain might be present. The gender gap in financial literacy could not be attributed to a difference in (displayed) confidence. In the third essay, “Preferences for lump-sum over divided payment structures,” I investigate whether or not people display systematic preferences for lump–sum or divided payment structures and how these preferences differ in gain (benefit) and loss (payment) situations. I investigate what happens when payments belong to a single underlying event, such as when people can choose to pay immediately or in installments. I also examine whether or not individual differences in time preferences, risk preferences, numeracy, and financial literacy are associated with preferences for one payment structure or the other. The aggregate results show a tendency for people to prefer obtaining and paying money in lump sums. I find no systematic indication that the considered individual differences play a role in this type of decision. The fourth essay, “Motivated reasoning when assessing the effect of refugee intake,” inquires into differences in worldview ideology, whether people identify as nationally or globally oriented, hinder them from objectively interpreting information. I use an experiment to find out if people display motivated reasoning when interpreting numerical information about the effects of refugees on the crime rate. Our results show evidence of motivated reasoning along the lines of worldview ideology. However, individuals with higher numeric ability were less likely to engage in motivated reasoning, leading to the conclusion that motivated reasoning is more likely to be driven by feelings and emotional cues than by deliberate analytical processes.
Author: Karen Vanessa Selody
Publisher:
ISBN:
Category :
Languages : en
Pages : 390
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