Dispersion in analysts’ target prices and stock returns

We propose the dispersion in analysts’ target prices as a new measure of disagreement among analysts and a proxy of ex ante stock risk. In contrast to the negative return predictability of analysts’ earnings forecast dispersion but consistent with the risk hypothesis, we document a significant positive relation between the target price dispersion and future stock returns up to 24 months. The next-month return spread between the highest and lowest deciles sorted on the target price dispersion measures can be over 2%. Our findings cannot be explained by the standard risk factors and stock characteristics including the target price revision. Further supporting the risk hypothesis, the target price dispersion is positively related to future stock risk.     

How CEO narcissism affects earnings management behaviors

This study examined whether chief executive officers’ (CEOs) with narcissistic tendencies are more likely to execute earnings management behavior because of pressure to fulfill earnings thresholds. The results revealed that a CEO who exhibits high narcissism is more likely to be involved in earnings management to compensate for her/his performance. Our findings suggest that CEO narcissism directly influences financial decisions. Considering the earnings thresholds, firms with a more narcissistic CEO experience a regulatory effect on real earnings management behavior. Studies have indicated that CEOs manipulate earnings to satisfy three primary earnings thresholds: prior year’s reported earnings, zero earnings, and analysts’ forecasts. Our empirical results provide further evidence that CEOs engage in earnings management to fulfill positive earnings thresholds and analysts’ forecasts. We infer that CEOs use the abnormal production cost method as an underlying mechanism to increase reported earnings. Our findings help clarify the relationship between CEO personality traits and earnings manipulation to assist investors with decision-making.     

Heterogenous beliefs with sentiments and asset pricing

We present a dynamic equilibrium model with two irrational investors: an extrapolator and a contrarian, whose beliefs regarding the growth rate of dividend stream are biased by their sentiments. The key contribution is to connect two disagreements with the degree of irrationality of investors and to provide novel insights into the predictability of stock return. We show that the higher level of sentiment disagreement is, the more stock price is overvalued. However, the future stock price will decline because the extrapolator’s sentiment will cool down over time. Therefore, the sentiment disagreement negatively predicts future return. At the meanwhile, our model not only shows that the survey expectations about cashflows increase the variations in asset price and dampen the corresponding volatility, but also helps to explain the mixed results about the relationship between the investors’ belief dispersions and stock return predictability.     

股票交易的数学模型分析

股票投资要慎重决策,公司的基本面即公司的发展状况是股票价格的重要依据。用预测公司的每股利润的增长率来预测股价的未来走势,建立相关的数学模型,算出股价变动期望值与方差,依据数值的大小来决策买入卖出,这是较为可行的股票交易决策方法。同时也可参考成交量的变化来决策买入卖出的时机。     

Price delay and post-earnings announcement drift anomalies: The role of option-implied betas

In this study, we used informational advantage in the options market to investigate whether the option-implied equity risk developed by Chen, Chung, and Tsai (2016) - viewed as a type of time-varying beta - can help explain both the Hou and Moskowitz (2005) price delay premium and post-earnings announcement drift (PEAD). Our empirical results revealed a clear association between quintile portfolios with greater price delay premiums and higher option-implied betas, while the Fama-MacBeth regressions showed that the implied betas are positively related to future delay-based portfolio returns. Regarding the PEAD, we discerned a general increase in the mean of portfolio option-implied betas with standardized unexpected earnings portfolio drift. Our regression results support the notion that a portfolio’s PEAD can be viewed as compensation for the variations in option-implied betas.     

Dissemination of Accruals Information,Role of Semi‐Annual Reporting,and Analysts' Earnings Forecasts: Evidence from Japan

Our study investigates the effects of dissemination of accounting accruals information on stock prices using Japanese annual reports as our sample. We conduct month‐by‐month detailed analyses of price adjustment behavior with a particular focus on revisions of analysts' earnings forecasts and changes in trading volume around the period of upcoming semi‐annual reports. We find that analysts' forecasts are often revised around this time, and analysts use this as auxiliary information. In addition, an accompanying re‐adjustment of abnormal returns and an increase in trading volume are observed. Our findings demonstrate that informational uncertainty initially triggered by the announcement of annual reports decreases as semi‐annual reports are disclosed and analysts change their earnings forecasts, and confirms the importance of semi‐annual reporting.     

Modelling market fundamentals: A model of the aluminium market

The standard approach to modelling primary commodity markets under rational expectations is to relate the commodity price to the production and consumption ‘surprises’ (i.e. the innovations on the equations). Using the world aluminium market, we show how this approach can be modified so that both the price and stock can be written in terms of one or more market ‘fundamentals’ which reflect the supply—demand balance on the market. This approach allows joint estimation of production, consumption, stock demand and price equations subject to cross-equation restrictions. It may be seen as a formalization of the approach adopted by metals industry analysts.     

What factors drive the price–rent ratio for the housing market? A modified present-value analysis

We consider which factors determined the price–rent ratio for the housing market in 18 U.S. metropolitan statistical areas (MSAs) and at the national level over the period of 1975–2014. Based on a present-value framework, our proposed empirical model separates the price–rent ratio for a given market into unobserved components related to the expected real rent growth and the expected housing return, but is modified from standard present-value analysis by also including a residual component that captures non-stationary deviations of the price–rent ratio from its present-value level. Estimates for the modified present-value model suggest that the present-value residual (PVR) component is always important and sometimes very large at the national and MSA levels, especially for MSAs that have experienced frequent booms and busts in the housing market. In further analysis, we find that house prices in MSAs that have larger PVR components are more sensitive to mortgage rate changes. These are also the MSAs with less elastic housing supply. Also, comparing our results with a recent statistical test for periodically-collapsing bubbles, we find that MSAs with large estimated PVR components are the same MSAs that test positively for explosive sub-periods in their price–rent ratios, especially during the 2005–2007 subsample. Our approach allows us to estimate the correlation between shocks to expected rent growth, the expected housing return, and the PVR component. We find that the expected housing return and movements in the PVR component are highly positively correlated implying an impact of the expected housing return on house prices that is amplified from what a standard present-value model would imply. Our results also show that most of the variation in the present-value component of the price–rent ratio arises due to the variation in the expected housing return.     

The Use of Valuation Models by UK Investment Analysts

This paper examines the use of valuation models by UK investment analysts. The study is based on, first, semi-structured interviews with 35 sell-side analysts from 10 leading investment banks and with 7 buy-side analysts from 3 asset management firms and, second, content analysis based on 98 equity research reports for FTSE-100 companies covered by the sell-side interviewees. We observe that analysts perceive the discounted cash flow (DCF) (and to some extent ‘sophisticated’ models in general) to have become significantly more important than prior survey evidence suggests, although we also find the (somewhat paradoxical) continued importance of ‘unsophisticated’ valuation multiples, notably the price/earnings ratio (PE). We find perceived limitations in the technical applicability of the DCF, which cause analysts to rely in practice upon valuation multiples and subjective judgement of whether the market price ‘feels right’. We also find that contextual factors, notably the analysts' need for their research to be credible to buy-side clients, cause the use of subjective, unsophisticated methods of valuation to be played down. Given the inherent flexibility of the DCF model, coupled with its ostensible credibility, it becomes the natural vehicle for conveying the analyst's research, even though it is very rarely relied upon to determine target prices and investment recommendations. We conclude that, while the literature has focused on the technical merits of alternative valuation models, analysts' actual usage of valuation models also requires an understanding of social and economic context and motivations.     

负商誉的价值相关性研究——基于新企业会计准则的实证研究

基于新企业会计准则下负商誉的会计政策,运用剩余收益估值模型和回报模型,本文系统探讨了负商誉对股票价值和超额回报的影响效应。研究发现:(1)扣除负商誉后的剩余收益对股价有显著正的解释力,而负商誉与股价负相关;(2)扣除负商誉后的未预期盈余对超额回报有显著正的解释力,负商誉与超额回报负相关。实证结论说明,市场不仅能够辨别盈余结构,而且市场投资者能够辨别负商誉的价值含义。     

Motives and consequences of IPOs in cold periods

We analyze the motives and long-term stock price performance of firms that pursue IPOs in cold IPO periods. We find that firms are more likely to engage in an IPO during a cold period when their earnings are relatively high and are expected to decline in the future. We also find that IPO firms during a cold period are more likely to have managed their earnings prior to the IPO. Furthermore, we find that cold IPO firms experience significantly weaker stock price performance than hot IPO firms, and results are robust to different criteria for defining hot and cold IPO periods, different measures of stock price performance, and different investment holding periods. We find that investment opportunities, the backing of a venture capitalist, and an increase in earnings in the year of the IPO lead to significantly higher long term stock price performance of IPO firms. Our multivariate models confirm the adverse cold IPO period effect on stock price performance even after controlling for the IPO motives and the firm's earnings performance. Our results also hold within the post-Sarbanes-Oxley (SOX) era.     

Neighborhood effect on stock price comovement

We investigate how the geographic distance between firms’ headquarters affects their stock price comovement. Our results show that a firm's stock return has stronger comovement with the returns of nearby firms than with those of distant firms. Being in the same state and/or in the same industry strengthens the return comovement, but does not substitute for the negative effect of geographic distance on price comovement. Firms of similar share price and size also show stronger return comovement, but these factors do not mitigate the negative distance impact. Consistent with investor home bias and neighborhood effect literature, our results suggest that investors’ preference for local stocks and their interactions lead to correlated trading in local stocks and therefore stronger local price comovement.     

Valuation ratios and long‐horizon stock price predictability

Using annual data for 1872–1997, this paper re‐examines the predictability of real stock prices based on price–dividend and price–earnings ratios. In line with the extant literature, we find significant evidence of increased long‐horizon predictability; that is, the hypothesis that the current value of a valuation ratio is uncorrelated with future stock price changes cannot be rejected at short horizons but can be rejected at longer horizons based on bootstrapped critical values constructed from linear representations of the data. While increased statistical power at long horizons in finite samples provides a possible explanation for the pattern of predictability in the data, we find via Monte Carlo simulations that the power to detect predictability in finite samples does not increase at long horizons in a linear framework. An alternative explanation for the pattern of predictability in the data is nonlinearities in the underlying data‐generating process. We consider exponential smooth‐transition autoregressive models of the price–dividend and price–earnings ratios and their ability to explain the pattern of stock price predictability in the data. Copyright © 2005 John Wiley & Sons, Ltd.     

The Fama-French model for estimating the cost of equity capital: The impact of real options of investment projects

We use the classic and modified Fama-French models to estimate the cost of capital of stock portfolios listed on selected markets. We compare four highly developed markets (US, EU, Japanese and global) and the Polish market as an alternative investment opportunity and a CEE emerging market. The performance of the applied procedures for estimating the cost of capital for company projects is examined and cost of capital is assessed with and without real option adjustment. We adjust the portfolios’ returns using the firms’ book-to-market ratios and idiosyncratic volatility as option proxies. The variability of cost of capital is evaluated using bootstrap methods. Our study shows a clear difference between bootstrapped distributions of cost of capital for the tested developed market and the Polish market portfolios. Wider confidence intervals of the estimated cost of capital of the studied Polish portfolios may result from political motivations in managing state-controlled companies. Our findings also indicate a clear difference between the cost of capital for tested portfolios with and without option adjustment. The widths of the estimated confidence intervals increase after option adjustment. The highest/lowest values of the cost of capital both with and without option adjustment are found for the US/Japanese market portfolios.     

Voluntary Disclosure and Analyst Forecast

Empiricists document that firms more often voluntarily disclose bad news than good news and link this pessimism to managers’ increased incentives not to fall short of earnings expectations. This paper analyzes the voluntary disclosure of a manager’s private information by explicitly considering her incentives to meet or beat an analyst’s earnings forecast. The model predicts that managers who face strong incentives to meet or beat these forecasts more frequently disclose bad news than good news in order to guide analysts’ expectations about future earnings downward. This pessimism is higher in markets with less informed managers and may hold even if the manager has strong incentives for high stock prices and meet-or-beat incentives are comparably low.     

Disclosure quality,price efficiency,and expected returns

Using a composite disclosure quality measure, we examine the effect of disclosure quality on price delay and the effect of price delay determined by disclosure quality on expected returns in the Taiwan stock market. We find that higher disclosure quality can reduce stock price delay through more investor attention and higher stock liquidity after we control for accounting quality variables and consider the endogeneity issue. Furthermore, we show that disclosure quality reduces expected stock returns through the price efficiency channel associated with both investor attention and stock liquidity. Our results indicate that increasing a firm’s standardized information rating by one standard deviation can reduce its expected stock return by 0.63% annually. Taken together, our evidence suggests that regulatory activities enforced to improve public firms’ disclosure quality in the Taiwan stock market can make the stock market more efficient and therefore lower investors’ required return for stocks.     

Size and book-to-market factors in the relationship between average stock returns and average book returns: some evidence from an emerging market

The present paper examines the association between average stock returns and average book returns and addresses the question as to whether there are common size and book-to-market factors in earnings and returns. The results of the empirical research, conducted in the Athens Stock Exchange, suggest that when the sample firms are grouped into size, book-to-market portfolios stock returns properly reflect differences in the evolution of accounting profitability. Moreover, it is found that the return on investment (ROI) measure contains size and book-to-market factors analogous to the mimic risk factors inherent in stock returns, in the sense that they capture information missed by ROI.     

证券分析师业绩预测和投资评级准确性实证分析

文章以国内证券分析师业的业绩预测和投资评级为研究对象,从投资评级的准确性、投资建议赢利性、业绩预测误差及其来源等几个方面进行了实证分析。研究结果表明,证券分析师的投资建议无论在短期还是中长期均不能产生显著的超额收益,业绩预测误差是导致投资评级失误的原因之一,而业绩预测误差主要源于分析师对公司层面信息的错误判断。     

证券投资决策与风险研究

风险是投资分析中永恒的主题。本文分析了股票投资的风险构成,采用随机理论分析股票价格变动的过程,并采用股票投资的技术分析手段,确定股票投资者预期收益率的风险估计值,最终得到股票当前价值的估计值,给股票投资者提供可以量化的决策依据。