Tactical Asset Allocation and Stock Issuance in the Korean Stock Market

Stock issuance predicts future stock returns in the Korean market. This creates profitable trading opportunities. Abnormal returns exist in the zero-cost portfolio that short the firms issuing large numbers of shares and longs those issuing small numbers of shares. Their average abnormal return is 12 percent per annum, which is highly significant even after controlling for market, size, value, and momentum factors as well as transaction costs. The authors suggest the possibility of fixed costs in equity market timing. Only the sizable benefit from market timing over fixed costs motivates firms to increase net equity shares.     

Fundamentals,Misvaluation, and Business Investment

Does stock market misvaluation affect business fixed investment? To answer this question, we provide evidence based on U.S. firm‐level panel data. We examine the orthogonality conditions for the investment Q and Euler equations, and our qualitative tests reject the null hypothesis that investment is unaffected by misvaluation (this result is not driven exclusively by the late 1990s). To measure the quantitative effects on investment, we introduce a measure of misvaluation into standard investment equations. Our estimates imply that a one‐standard‐deviation increase in misvaluation increases investment between 20% and 60% relative to the mean level of investment in the sample.     

IFRS adoption and stock misvaluation: Implication to Korea discount

Analyzing publicly traded stocks in Korea surrounding IFRS adoption in 2011, we find that the gap between stock price and firm value, value-to-price (V/P) ratio, narrows following the IFRS adoption and that this narrowed gap is observed only for higher V/P firms. We further find that the return predictability of V/P decreases in the post-IFRS period. Using a path analysis, we report further evidence that mandatory IFRS adoption decreases idiosyncratic volatility and improves trading volume and market liquidity, thereby contributing to the narrowed gap between value and price. We conclude that IFRS adoption contributes to resolution of Korea discount.     

Misvaluation comovement,market efficiency and the cross-section of stock returns: Evidence from China

In this study, we examine the relation between stock misvaluation and expected returns in China's A-share market. We measure individual stocks’ misvaluation based on their pricing deviation from fundamental values, following Rhodes-Kropf et al. (2005. J. Finan. Econ. 77 (3), 561) and Chang et al. (2013. J. Bank. Finance, forthcoming), and find that the measure has strong and robust return predictive power in the Chinese market. We further form a misvaluation factor and find that misvaluation comovement and systematic misvaluation exist in the Chinese market. A comparison of our results with those of Chang et al. (2013. J. Bank. Finance, forthcoming) reveals that the misvaluation effect is much stronger in the Chinese market than in the U.S market. This evidence is consistent with the notion that the Chinese market is much less efficient than the U.S. market. Finally, we show that the return predictive power of misvaluation has weakened since China launched its split-share structure reform in 2005, which could result from the fact that the reform helps to promote market efficiency.     

投资者情绪、股票错误估值与上市公司投资简

以剩余收益估值模型衡量股票错误估值程度,基于公司层面测度投资者情绪,利用非平衡面板数据模型检验投资投资者情绪如何通过证券市场传导到上市公司从而影响其实际投资行为。实证研究发现,投资者情绪主要通过直接的迎合渠道而非间接的股权融资渠道影响上市公司投资行为,且公司投资在迎合渠道上表现出对投资者情绪的“反迎合机制”,此外不同特征的公司其投资对投资者情绪的敏感度存在横截面差异。     

Corporate investment and stock market valuation

We study the driving forces behind the positive association observed between corporate investment and stock market valuation, and how they interact with managerial equity incentives and informativeness of investment. We build a dynamic model where managers use investment choices to influence investors' opinions about firms' future prospects and increase the market valuation. The incentives to manipulate the valuation processes increase with managerial equity incentives and informativeness of investment. Our empirical findings support the model's predictions that the tendency of using investment to boost market valuation is stronger when managerial stock ownership is high or when earnings quality is low (i.e., there is strong reliance on investment for information).     

Market misvaluation and corporate innovation: “Catering” or “risk aversion”?—Empirical evidence from China capital market

This paper tests how market misvaluation affects corporate innovation. Unlike the “catering effect” observed in the US, we find that estimated stock overvaluation in China is strongly negatively associated with corporate innovation, conforming to our “risk-aversion” hypothesis. In China, misvaluation affects innovation via finance and management behavior channels. The effect is more significant in non-state-owned corporations than in state-owned corporations. Stock turnover rate and ownership concentration play moderating roles in the effect. The evidence sheds light on the relationship between market risks and corporate innovation in an emerging market.