Are stocks dumped or neglected by analysts' inferior investments to covered stocks?

We compare the long-term stock price and operating performance of firms that are followed by analysts to those that are not over the period of 1994-2005. While analysts are skillful in identifying quality firms for coverage, the market is efficient in pricing both covered and neglected stocks such that risk-adjusted stock returns are compatible between the two groups. However, dumped stocks consistently outperform covered stocks with significant risk-adjusted returns across different market conditions and regulatory environments. Hence, investors might earn better returns by investing in dumped stocks, but the higher returns may represent compensation for greater search costs and information risk associated with investing in these stocks.     

Foreign institutional investors and stock return comovement

We investigate whether foreign institutional investors facilitate firm-specific information flow in the global market. Specifically, using annual institutional ownership data from firms across 40 countries, we find that foreign institutional ownership is negatively associated with excess stock return comovement. Our results are more pronounced when foreign institutional investors originate from common-law countries and hold a large equity stake in invested firms; and when the invested firms are located in civil-law countries. Overall, the evidence suggests that foreign institutional investors from countries with strong investor protection play an important informational role in mitigating excess stock return comovement around the world.     

Foreign institutional investors and stock return comovement

We investigate whether foreign institutional investors facilitate firm-specific information flow in the global market. Specifically, using annual institutional ownership data from firms across 40 countries, we find that foreign institutional ownership is negatively associated with excess stock return comovement. Our results are more pronounced when foreign institutional investors originate from common-law countries and hold a large equity stake in invested firms; and when the invested firms are located in civil-law countries. Overall, the evidence suggests that foreign institutional investors from countries with strong investor protection play an important informational role in mitigating excess stock return comovement around the world.     

股票送转、除权日异常收益与分析师关注度

本文使用事件研究的方法,利用1999年到2009年的中国股市上市公司的股票送股、转增事件的相关数据,分析发现这些股票会由于除权日时间而获得正的异常收益,这一结果不随着不同的统计假设、送转事件是否伴随着现金红利以及按照送股与转增的比例、现金红利数量划分的子样本而改变。探究这种异常收益的来源,发现分析师关注度(下文以分析师关注度来代替)会正向显著的影响异常收益;每多一名分析师关注这支送转的股票会在除权日多带来0.2元的异常收益,并且这种关系是稳健的,进一步通过工具变量回归解决了分析师关注的内生性。     

Operating leverage as a determinant of systematic risk

Since the development of the capital asset pricing model, a number of studies have examined the effect of a firm's operating leverage on its systematic risk. The essential conclusion of these studies is that operating leverage affects systematic risk through either the contribution margin or unit variable costs. In this paper, the models derived in previous research are refined and extended to demonstrate that, for either a single-product or multiproduct firm, the degree of operating leverage measures the full effect of a firm's operating leverage on its systematic risk. In addition, it is shown that a sales variability measure should also be an important differentiating factor among the systematic risk of common stocks. Thus, the results have important practical implications for financial managers when estimating project or divisional risk for investment decisions, and for security analysts when predicting the systematic risk of common stocks.     

Direct effect of advertising spending on firm value: Moderating role of financial analyst coverage

Previous research distinguishes between direct and indirect effects of advertising spending on firm value. This research focuses on the direct effect of advertising based on the spillover and signaling effect of advertising. Both effects are the result of increased public information flow about the firm created by advertising. Another source of public information flow about firms is information produced by financial analysts. We hypothesize that the direct effect of advertising on firm value will be stronger for firms not covered by financial analysts than for those that are covered because investors may rely on information flow from financial analysts for covered firms and rely on information flow from advertising in the absence of analyst coverage. Using financial and accounting databases for publicly traded firms for a period from 1975 to 2015, we test this hypothesis and find empirical evidence for the moderating role of analyst coverage in the relationship between advertising spending and firm value.     

Does the External Monitoring Effect of Financial Analysts Deter Corporate Fraud in China?

We examine whether analyst coverage influences corporate fraud in China. The fraud triangle specifies three main factors, i.e. opportunity, incentive, and rationalization. On the one hand, analysts may reduce the fraud opportunity factor through external monitoring aimed at discouraging managerial misconduct, which can moderate agency problems. On the other hand, analysts may increase the fraud incentive factor by pressurizing managers to achieve short-term performance targets, which can exacerbate agency problem. In either case, the potential influence of analysts on the fraud rationalization factor may be more pronounced among firms that are more dependent on the capital market for corporate finance. Using a sample of Chinese listed firms, we show a negative association between corporate fraud propensity and analyst coverage, and that this effect is more pronounced among non-state-owned enterprises, which are more reliant on the stock market for external funding. These findings suggest that analyst coverage contributes to corporate fraud deterrence in emerging economies characterized by weak investor protection. The main policy implication is that further development of the analyst profession in emerging economies may benefit investors and strengthen business ethics.     

Comovement in GDP trends and cycles among trading partners

It has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another. However, nations face shocks to both the cyclical and trend components of their GDP series. Contrary to the result for cyclical fluctuations, we find comovement of shocks to the trend component of real GDP is weaker among countries that trade more intensively with one another. We simulate changes in ten-year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement.     

Comovement in GDP trends and cycles among trading partners

It has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another. However, nations face shocks to both the cyclical and trend components of their GDP series. Contrary to the result for cyclical fluctuations, we find comovement of shocks to the trend component of real GDP is weaker among countries that trade more intensively with one another. We simulate changes in ten-year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement.     

分析师跟进、法律环境与企业诉讼风险

本文以我国2008-2013年沪深两市非金融类上市公司为样本,实证研究分析师跟进对企业诉讼风险的影响及其制约因素。结果发现：分析师跟进能够显著降低上市公司的诉讼风险,且分析师跟进数量越多,上市公司面临的诉讼风险越低;将法律环境纳入考虑,发现较之法治水平低的地区,分析师跟进对上市公司诉讼风险的降低作用在法治水平高的地区更为显著。本文丰富了分析师在证券市场发挥外部治理作用的情景素材,也为现实中国家法律体系的进一步完善提供经验佐证。     

Dispersion in Analysts’ Earnings Forecasts and Market Efficiency

Recent studies show that firms with higher analysts’ earnings forecasts dispersion subsequently have lower returns than firms with lower forecasts dispersion. This paper evaluates alternative explanations for the dispersion–return relation using a stochastic dominance approach. We aim to discriminate between the hypothesis that some asset pricing models can explain the puzzling negative relation between dispersion and stock returns, and the alternative hypothesis that the dispersion effect is mainly driven by investor irrationality and thus is an evidence of a failure of efficient markets. We find that low dispersion stocks dominate high dispersion stocks by second‐ and third‐order stochastic dominance over the period from 1976 to 2012. Our results imply that any investor who is risk‐averse and prefers positive skewness would unambiguously prefer low dispersion stocks to high dispersion stocks. We conclude that the dispersion effect is more likely evidence of market inefficiency, rather than a result of omitted risk factors.     

Media Coverage and the Cross‐Section of Stock Returns: The Chinese Evidence

Using hand‐collected news headlines for a large sample of listed firms in China over a period of 2000–2015, we investigate the cross‐sectional relation between media coverage and stock returns. Our results document that no‐media coverage stocks earn 55 basis points a month higher than stocks that are featured in the media. This result is robust after controlling for common risk factors and is not driven by short‐run return reversals. Further analysis provides evidence to support the investor recognition hypothesis, suggesting that mass media may play an incremental role in providing a supplement to traditional channels of information dissemination. Therefore, results in this paper are of interests to both investors and regulators on drivers of stock returns.     

The nature and determinants of comovement between developed,emerging and frontier equity markets: Europe versus Asia‐Pacific

International investors are increasingly attracted towards emerging and frontier markets because of their potential to enhance diversification benefits of a global portfolio. This calls for a rigorous analysis of the nature and determinants of stock market comovement between developed, emerging, and frontier markets in Europe and Asia‐Pacific regions. The findings suggest that unlike their Asia‐Pacific counterparts, European developed, emerging, and frontier stock markets display a higher degree of comovement. Although Asia‐Pacific frontier markets provide good diversification opportunities, investors must be cautioned against their weak financial system. The volatility of returns, gross domestic product growth rate, and the 2008 global financial crisis (GFC) are the key determinants of stock market comovement in Europe. The mechanisms by which comovement in the Asia‐Pacific region is strengthened differ across markets. Comparative analysis of comovement and its determinants across different classes of equity markets and geographies is expected to provide valuable perspectives to global investors, portfolio managers, and policymakers.     

Does Prepayment Risk of Mortgages Affect Excess Returns of Bank Stocks?

This paper explores the relationship between the prepayment risk embedded in conventional, fixed-rate residential mortgages and excess returns for bank stocks. There are two interesting findings in this study. First, commercial banks traded in the Nasdaq market are more meanvariance efficient than the other seven groups of industrial stocks. Second, the prepayment risk factor is significant for these banks. The prepayment risk mainly reflects a call option embedded in a mortgage plus foreclosure costs associated with a mortgage put option. This risk is measured by a remaining part of mortgage rates after excluding the influence of real estate market, maturity, and default risks on mortgage rates. The results of this study suggest that the prepayment risk factor does significantly affect excess returns for bank stocks in the period with high levels of mortgage refinancing activities. JEL Classification G210     

Female analysts and COVID-19 corporate donation

This paper examines the impact of female analysts' coverage on firm's philanthropic activities amidst the outbreak of the COVID-19 pandemic in China. Using a hand-collected dataset of corporate philanthropy, the paper provides robust evidence that firms covered by female analysts are more likely to contribute actively to the well-being of societies by increasing corporate donation. This positive relationship is more pronounced if the company is privately controlled or covered by female analysts with more working experience, or located in more infectious provinces. Overall, our findings call for more female analyst recruitment, yielding benefits of pressuring firms to engage in philanthropy.     

How Does Stock Market React to Dividend Surprises? Evidence from Emerging Markets of India and Russia

In this article the authors empirically investigate information content of dividends announcements and average reaction of emerging markets of India and Russia to dividend surprises on the postcrisis period 2010 to 2014. The study applies an analysts’ expectations-based approach rarely used in academic literature. The authors conclude that the Russian market on average reacts negatively to good and bad dividend surprises; good dividend surprises on average trigger positive abnormal returns on Indian stocks, whereas bad and no surprises are associated with negative reactions of the Indian market. Results of the study are discussed from the perspective of dividend signaling theory, market efficiency, and investor behavior.     

Stock price informativeness and analyst coverage

We examine whether more analyst coverage translates into more informative stock prices and apply this to both developed and emerging markets. We measure price informativeness using the association between current stock returns and future earnings. We argue that more informative stock prices contain more information about future earnings. Results indicate that analysts' activities do not contribute to the impounding of future earnings information into current stock prices, in accordance with the view that analysts are outsiders who do not have full access to firm‐level information. We also find that analysts specialize according to industry and that “industry expertise” is limited to developed countries. Overall, our evidence is consistent with the explanation that analysts focus on gathering and mapping industry‐ and market‐level information (macroeconomic information) into stock prices. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd.     

Goodwill Capital

The concept of goodwill or brand capital is commonly employed by analysts in business and marketing to measure the asset value of a company name or a brand name, and consequently among accountants and business analysts, but is seldom used by economists. The purpose of this article is to begin to develop the concept of goodwill capital by presenting an analysis of what it is and some estimates of its likely magnitudes. We define goodwill capital, like the capital arising from R&D and advertising, as a form of intangible asset, albeit one which cannot be readily related to past investments in R&D, advertising, and capital equipment. We compute estimates of goodwill capital by deducting measures of these other three forms of capital from a firm's market value. For many companies, goodwill capital turns out to be the largest of its four capital stocks. Roughly half of our estimates of goodwill capital turn out to be negative.     

Managerial Sharing,Mutual Fund Connections,and Performance

In this study, we examine the effect of mutual fund connections, through managerial sharing, on performance and stock holding commonalities. Our analysis of return correlations and portfolio holdings indicates that more interconnected funds tend to buy and sell similar stocks, hence increasing the similarity of portfolio holdings and undermining the distinctiveness of their investment strategy. Our results also indicate that highly connected funds significantly underperform weakly connected funds by about 1.4% on a yearly risk‐adjusted basis. We show that fund family performance is unaffected by the intensity of fund connections, and that greater fund connections could significantly enhance family‐level profit margins.     

Analyst coverage,corporate social responsibility,and firm risk

This article examines the empirical association between analyst coverage and corporate social responsibility (CSR) by investigating their simultaneous and causal effects, and its joint effects of CSR engagement and analyst coverage on firm risk. We find a positive association between the level and change of CSR engagement and the level and change of analyst coverage after considering simultaneity and causality. Based on the first‐difference approach, we further find that the change in analyst following from the previous year affects the change in CSR in the current period, whereas the change in CSR from the previous period does not influence the change in analyst following in the current period. Furthermore, we find that the change in CSR engagement as well as the interaction effect of changes in CSR and analyst coverage reduces the change of firm risk. When we examine the CSR strengths and concerns separately, analyst following does not significantly influence firms’ CSR strength but CSR concern activities decreases significantly as firms have more analyst followings. We further find the mediating role of financial analysts between CSR concerns (but not CSR strengths) and firm risk. We maintain that analysts provide indirect but additional social pressure to the firms to eventually reduce their irresponsible activities. Taken together, we interpret these results to support the stakeholder theory‐based conflict‐resolution explanation that considers CSR engagement as a vehicle to reduce conflicts of interest between managers and noninvesting stakeholders but not the overinvestment hypothesis that views CSR as a waste of valuable resources at the cost of shareholders.