Equity-premium prediction: Attention is all you need

Predictions of stock returns are greatly improved relative to low-dimensional forecasting regressions when the forecasts are based on the estimated factor of large data sets, also known as the diffusion index (DI) model. However, when applied to text data, DI models do not perform well. This paper shows that by simply using text data in a DI model does not improve equity-premium forecasts over the naive historical-average model, but substantial gains are obtained when one selects the most predictive words before computing the factors and allows the dictionary to be updated over time.     

Exploring the Impacts of the COVID-19 Pandemic on Productivity: A Study of Accounting Faculty Who Are Caregivers of Children*

This study explores how the COVID-19 pandemic affected the productivity of accounting faculty who identify as caregivers of children. We examine the effects on caregivers of children because of the significant shift in the family-work interface that resulted from remote working and learning. We draw on existing family-work conflict research to develop four hypotheses that explore why the productivity of accounting faculty who are caregivers of children might be affected differently during the pandemic than that of accounting faculty who are non-caregivers of children. We surveyed accounting faculty primarily across Canada and the United States. We find that accounting faculty caring for children during the pandemic experienced reduced research, teaching, and service productivity because of increased family-work conflict and depletion. We supplement our main findings with an analysis of open-ended questions to further understand productivity changes and supports for research, teaching, and service. Our study contributes to research examining family-work conflict, employee productivity, and the accounting profession by making practical recommendations for providing targeted support for caregivers of children during times of crisis.     

Investment–cash flow sensitivity and investor protection

We examine the role of country-level legal investor protection (i.e., shareholder and creditor protection) on firm investment–cash flow sensitivity (ICFS). Using underexplored research data on investor protection across 21 countries and working with a conservative empirical design, we extend prior literature on the relation between investor protection and ICFS and provide new evidence on how these country-level attributes interact to explain a firm's ICFS. We find that either the strong legal protection of minority shareholders or the strong legal protection of creditors reduces the sensitivity of investment to internal cash flow. However, in countries with strong levels of both minority shareholder and creditor protection, ICFS increases. Our results remain robust after controlling for several alternative explanations. The results support the argument that overregulation arises when policymakers increase investor protection at levels that lead firms to avoid external sources of finance, hampering firm investment. Our findings suggest that countries face a regulatory trade-off such that increasing investor protection (either shareholder or creditors protection) enhances financial markets efficiency, but excessive regulation can indeed lead to financial markets inefficiencies.