Miracle-dz/UniFAR-FTUs huggingface dataset:
The Dark Side of Low Financial Reporting Frequency: Investors’ Reliance on Alternative Sources of Earnings News and Excessive Information Spillovers

This paper examines how low financial reporting frequency affects investors’ reliance on alternative sources of earnings information. We find that the returns of semi-annual earnings announcers (i.e. low reporting frequency stocks, “LRF”) are almost twice as sensitive to the earnings announcement returns of US industry bellwether peers for non-reporting periods compared to reporting periods. Strikingly, these heightened spillovers are followed by return reversals when investors finally observe own-firm earnings at the subsequent semi-annual earnings announcement. This indicates that investors periodically overreact to peer-firm earnings news in the absence of own-firm earnings disclosures in interim periods. We also find elevated price volatility and trading volume around earnings announcements for non-reporting periods, consistent with theories of investor overconfidence. Collectively, our results suggest that investors are unable to successfully offset the information loss arising from low reporting frequency, thus impairing their ability to value firms and adversely affecting the quality of financial markets.
Effects of winsorization: The cases of forecasting non-GAAP and GAAP earnings

This study examines how the winsorization procedure affects the performance of regression-based earnings forecasting models. I find that the impact is multifaceted and depends principally on three factors: the level of data errors in the tails, the characteristics of firms affected by the process, and scaling. For a non-GAAP earnings yield specification, where data input errors exist, winsorization changes the information set in a non-systematic way and helps to improve the performance of regression-based forecasts, especially when the least squares estimator is employed. However, for a non-GAAP earnings per share specification, with fewer data input errors found in the tails of the distribution, winsorization has a particularly strong effect on very large companies, lowering the economic value of earnings predictions. I observe similar results for corresponding GAAP earnings specifications. Robust estimators, such as least absolute deviation, high breakdown-point and Theil-Sen, appear to be a more effective solution than winsorization. Their earnings forecasts consistently yield significant positive abnormal returns across non-GAAP and GAAP earnings specifications.
How Good is Good News? Technology Depth, Book-to-Market Ratios, and Innovative Events

Using a sample of 611 innovation news announcements made by US biotech firms during 1983-1992, this article finds positive abnormal returns and trading volumes during the announcement period. In contrast with most other studies on long-run stock performance, a long-run negative drift in the stock price subsequent to firms' innovative events is documented. The observed negative drift is robust to benchmarks and procedures used in calculating the long-term abnormal returns. The cross-sectional analysis demonstrates that the post-announcement abnormal returns are positively related to a firm's technology depth (measured by R&D intensity) and book-to-market ratio, negatively related to the size. The evidence supports the investors' expectation error hypothesis: given high degree of technical uncertainty concerning a firm's innovative events, investors easily develop erroneous expectation about the value of the innovations. As event time goes, more information is revealed. Investors start to correct the mistakes in their initial responses. Firms that were badly mispriced at the beginning tend to have large long-run negative drift. Large firms, the firms with low B/M ratios, and firms with weak science and technology base are more likely to be mispriced at the announcement.
How Aggressive are High-Frequency Traders?

We study order aggressiveness of market-making high-frequency traders (HFTs), opportunistic HFTs, and non-HFTs. We find that market-making HFTs follow their own group's previous order submissions more than they follow other traders’ orders. Opportunistic HFTs and non-HFTs tend to split market orders into small portions submitted in sequence. HFTs submit more (less) aggressive orders when the same-side (opposite-side) depth is large, and supply liquidity when the bid-ask spread is wide. Thus, HFTs adhere strongly to the trade-off between waiting cost and the cost of immediate execution. Non-HFTs care less about this trade-off, but react somewhat stronger than HFTs to volatility. The appendices for this paper are available at the following URL: <a href="http://ssrn.com/abstract=2365988">http://ssrn.com/abstract=2365988</a>
Fundamental Weighting

Herein we compare the performance of fundamental weighted indexes to a traditional value weighted index on a back tested basis. Working with the pre-selected S&P 500 components, we isolate the effect of changing the weighing scheme. As an additional test, we transformed the value-weighted measure by taking the square and higher roots in order to test the impact of size dampening transformations. Our results generally support the benefits of indexing with fundamental weights, even after taking account of transactions cost.
Institutional Herding

Institutional investors' demand for a security this quarter is positively correlated with their demand for the security last quarter. These results are attributed to institutional investors following each other into and out of the same securities ("herding")and institutional investors following their own lag trades. Consistent with previous work, we find institutional investors are "momentum" traders. Little of their herding, however, results from momentum trading. Moreover, institutional demand is more strongly related to lag institutional demand than lag returns. Institutional herding declines over time and differs across capitalizations and investor types. Our results are most consistent with the hypothesis that institutional investors herd as a result of inferring information from each other's trades.
Spillovers from equity to banking markets: Evidence from stock liquidity and the cost of bank loans*

We use the SEC Tick Size Pilot Program to show that stock liquidity reduces the cost of bank loans. Treated firms experience a 52 basis point increase in the cost of borrowing during the Tick Size Pilot Program; an effect that reverses when the program ends. We find similar results in a broad panel of firms using both retail and institutional measures of liquidity. We identify three non-mutually exclusive channels driving this effect. Liquidity increases the informativeness of prices, enhances external monitoring of the borrower by blockholders, and weakens the holdup problem in relationship banking. Finally, we show that firms respond to lower borrowing costs by using more bank credit.
Financing Payouts

Over 40% of firms that make payouts also raise capital during the same year, resulting in 31% of aggregate share repurchases and dividends being externally financed, primarily with debt. Most externally financed payouts are the result of firms persistently setting payouts above free cash flow. The management of leverage and cash for tax optimization purposes is a key—but not the only—driver of payout-financing behavior. Debt-financed payouts are associated with increased firm financial fragility during the COVID-19 and other crises—but internally funded payouts are not. Our results highlight the need to view payout policy through the wider lens of capital structure.
Effect of an Income Shock on Subnational Debt: Micro Evidence from Mexico

This paper examines how the borrowing decisions of local governments, often financially constrained, respond to a shock that affects the distribution of revenue from the central government. The shock stems from the discrete updating of population census data that is plausibly uncorrelated with short-term financing needs. For a one-standard-deviation increase in the population shock, I find that federal transfers to Mexican municipalities increase by 2% over the first two post-census years. Using supervisory loan-level data, I show that the probability of municipalities being indebted declines by 0.1 percentage points over the same period. The response is driven by governments with relatively more ownsource revenue, less dependent on transfers, which lenders perceive as more creditworthy. These findings reveal a small capacity to smooth shocks in credit markets, restricted to few governments with a diversified revenue base. In general, there is no evidence of a positive effect of grants on local debt, not even when the lender is a public bank. The additional revenue mostly goes to finance short-term, current expenditures, with limited potential to alter the path of local development.
Cash Flow News and the Investment Effect in the Cross-Section of Stock Returns

This study provides novel evidence that cash flow news quantitatively explains the investment effect in the cross-section of stock returns. The negative return predictability of asset growth, investment growth, and accruals is evident only through the cash flow news component of returns. The cash flow news returns associated with investment-sorted portfolios exhibit a reversal from the pre-formation period to the post-formation period. Such a return reversal is in line with reversals in firm fundamentals and becomes stronger for stocks with higher information uncertainty. Our findings are consistent with the expectational errors hypothesis and fail to support the risk-based explanation for the investment effect.
The Price of Being Foreign: Stock Market Penalties Associated with Accounting Irregularities for U.S.-listed Foreign Firms

We examine the stock market consequences of disclosing accounting irregularities for U.S.-listed foreign firms. After controlling for the severity of the irregularity and other firm characteristics, we find that foreign firms experience significantly more negative short-window stock market reactions following irregularity announcements than do U.S. firms. Moreover, for a subsample of 64 irregularities of foreign firms that are listed on both a U.S. and home country stock exchange, we find evidence that restating firms’ U.S. investors react more negatively to the same irregularity than their home-country investors. This differential market reaction appears related to firm-specific information risks that are greater for foreign firms than U.S. firms. We also find a geographic contagion effect as non-restating firms from the same country experience significant stock price declines following irregularity announcements. Within a country-year, this contagion effect is concentrated among firms with lower accruals quality, suggesting that foreign firms’ irregularities cause U.S. investors to alter their assessment of the earnings quality of non-restating firms from the same country. Collectively, consistent with the reputational bonding hypothesis in prior literature, our results suggest that accounting irregularities cause U.S. investors to reassess the information risk associated with foreign firms.
Disclosure Readability and the Sensitivity of Investors’ Valuation Judgments to Outside Information

Prior literature suggests that investors react less strongly to information in less readable disclosures. We extend this literature by considering how disclosure readability affects the sensitivity of investors’ valuation judgments to the information contained in outside (i.e., non-firm) sources of information. Using an experiment, we present investors with a disclosure containing mixed news about the valence of firm performance, and this disclosure varies in readability. We find that investors who initially view a less readable firm disclosure provide valuation judgments that incorporate the outside information to a greater extent, such that their valuation judgments are more sensitive to whether outside information is relatively more or less supportive of management’s positive forward-looking statements. We find evidence that this occurs primarily because investors who view a less readable initial disclosure feel less comfortable evaluating the firm and, in turn, rely more on the outside information. We also find that viewing a less readable firm disclosure indirectly increases the extent to which participants search outside information. Combined, our results suggest that investors’ valuation judgments may be more influenced by outside sources of information when managers provide less readable firm disclosures, potentially limiting the extent to which managers can benefit from strategically issuing less readable disclosures to obfuscate poor performance. These findings also imply that investors might over-rely on more readable disclosures while discounting outside sources of information about the firm.
Order Aggressiveness

This study analyzes the information content of the limit order book in a pure order-driven market. The objective is twofold. First, we analyze how the state of the limit order book affects the trader strategies. Second, we develop a new econometric technique to study order aggressiveness and provide empirical evidence on the recent theoretical models on limit order book markets. Our results show that a patient trader becomes more aggressive when the own (opposite) side book is deeper (thinner), the spread is wider and the temporary volatility increases. Asymmetric results hold for eager agents. Also, the buy and the sell sides of the book affect the order flow differently.
Net Cash Flow Yield and the Cross-Section of Stock Returns

Fama and French (2006) decompose the valuation equation into the book to market ratio (BM), profitability and investment to estimate expected returns. In this paper, I attempt to integrate information from the valuation equation into one variable, net cash flow yield (NCFY), to capture expected returns. NCFY performs similarly to or better than a combination of BM, profitability and investment in explaining a broad set of return anomalies. A fundamentals-based four-factor model consisting of the market, size, monthly-updated NCFY, and earnings momentum factors dominates the recent models of Hou, Xue, and Zhang (2015), Barillas and Shanken (2017b), and Stambaugh and Yu (2017).
The Effect of Local Tournament Incentives on Firms’ Performance, Risk-Taking Decisions, and Financial Reporting Decisions

This study documents the existence of local employment preferences for corporate executives and examines how the compensation of executives’ local peers affects their own performance, risk-taking decisions, and financial reporting decisions. We find that external hires of new CEOs (CFOs) are five (eight) times more likely to be from local firms than non-local firms. We also find that local tournament incentives—as proxied by the pay gap between an executive and higher-paid executives in the area—are associated with stronger performance, greater risk taking, and more financial misreporting. We find consistent results using a difference-in-difference analysis that exploits plausibly exogenous variation in local tournament incentives caused by the sudden death of a local CEO. Our findings are consistent with executives taking actions to compete for a promotion to a nearby firm with higher pay. In addition, we find the effect of local tournament incentives is larger when local mobility is greater and executives’ local preferences are stronger.
Should Hedge Funds Deviate from the Benchmark?

This paper proposes a new measure of strategy distinctiveness for hedge funds, termed the Dispersion Contribution Index (DCI). This measure is based on a fund's return-distance from the mean return of same-style funds. We find that funds with more distinctive strategies tend to underperform relative to their less distinctive peers, after accounting for their idiosyncratic characteristics. This relative underperformance stems primarily from the higher risk exposure associated with pursuing a unique strategy. Our findings are robust to a wide array of additional tests.
Aspirations, Human Capital Investment, and the Intergenerational Transmission of Poverty in Indonesia

This study investigates the effect of parental aspirations gap on children’s educational attainment between 2007 and 2014, using two waves of Indonesian Family Life Survey data. The aspirations gap is measured by the difference between one’s future reference point and his or her current life evaluation reported by each household head and spouse. The results show that boys whose fathers report a moderate level of the aspirations gap achieve substantially longer schooling years than the mean level of their same age cohort. Furthermore, the relationship is found to be inversely U-shaped, implying that an excessive aspirations gap discourages investment in children’s human capital. An increasing aspirations gap of parents is also found to impede the educational attainment of children in poor families, which are more vulnerable to shocks that are found to increase the gap. Overall, the results of this paper shed light on the role of parental aspirations gap in the link between socioeconomic status of family and educational outcomes of children in Indonesia, where the gap of the poor is found to increase faster than the rich.
The Peer Group in European Valuation Multiples: Investors’ Perception About Size

The aim of this paper is to bring a new perspective to the role of control factors in MARKET-EBITDA, MARKET-SALES and MARKET-BOOK ratios in the European market, which are different from industry. We analyze the role of size and its interactions with the rest of the variables: profitability, risk, and structural asset factors. For this purpose, we have developed a valuation model using panel data methodology for listed European firms from the period 2002-2013. We found that size includes economic aspects of the companies, but also differential investors’ perceptions about these economic aspects. It makes it a complementary explanation factor on the selection of the peer group with the rest of the variables. These findings help to understand the variation of market ratios and share prices depending on size in different economic conditions or economic cycles. This research is in accordance with the theoretical framework of market ratios and with size effect theory.
Breadth of Ownership and the Cross-Section of Corporate Bond Returns

Using breadth of corporate bond fund ownership to proxy for the combination of short-sale constraints and divergence of opinions in the corporate bond market, this paper investigates whether and to what extent Miller’s overpricing theory holds for corporate bonds. Consistent with the theory, we document a significant and positive relation between changes in breadth and the cross-section of future corporate bond returns. Because of the bounded upside of debt, the ability of changes in breadth to predict returns appears to be less pronounced for corporate bonds relative to stocks. Furthermore, this predictability is stronger among bonds with higher credit risk, indicating that the effect of short-sale constraints and divergence of opinions on bond mispricing tends to be larger for riskier bonds with more upside potential and, thus, more scope for overvaluation. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2023. 4950 .
Comparing the Performance of Islamic and Conventional Stocks in Jakarta Stock Exchange During Bull and Bear Market Periods

The Sharia investment principles give Muslim investors a restriction in picking stocks under their investment portfolio. There are strict rules that must be followed to make a security or a company Sharia-compliant. The argument whether the performance of Sharia-compliant stocks is better compared to the conventional stocks still remains an open question. This paper aims to review and analyze whether Islamic stocks outperform Conventional stocks when the market is doing well (bull periods) and sustain better when the market is in the downturn (bear periods). Our finding shows a statistically insignificant difference in average return, market risk (beta), and total risk (standard deviation) between Islamic and Conventional stocks in both bull and bear periods. However, the data shows a consistent result that Islamic stocks return are higher during both bull and bear periods. Islamic stocks also show higher risk during bear periods proven with higher standard deviation and beta. However, it is less volatile during the bull period as compared to conventional stocks. Furthermore, the investigation of two types of stocks using risk-adjusted returns ratios shows that both stocks behave in a similar way. However, the Islamic stock market performed better than the conventional stock market during the bear 1 and bear 3 (Global financial crisis 2008) shown by higher performance in all three ratios although it is not statistically significant.
Corporate Social Responsibility and Stock Prices After the Financial Crisis: The Role of Strategic CSR Activities

We analyze the relationship between corporate social responsibility and the stock market performance in the post-global financial crisis period. A new measure of social responsibility by Thomson Reuters, called the ESG Combined Score, is used. As a novel feature of our analysis, socially responsible engagement is divided into the strategic activities closely related to the examined companies’ core business and the remaining secondary activities. The results of the fixed effects regression show a positive and statistically, as well as economically, significant impact of the strategic activities on the corporate stock market performance of companies. This impact is up to 103% higher compared to the secondary activities. The empirical results suggest that if companies aim to increase their share prices via the corporate social responsibility channel, they should strategically select their socially responsible initiatives.
A Study of Factors Affecting Academic Entrepreneurship in University of Tehran Science and Technology Park.

After the education and research mission, academic entrepreneurship is the new important mission of the university. The concept of academic entrepreneurship correlates with the commercialization of knowledge. The present study seeks to find the factors affecting academic entrepreneurship. The methodology based on the goal is practical, based on the method of obtaining data is descriptive- correlation and based on the collected data that have obtained through questionnaire is quantitative. Population consists of 130 knowledge based firms in university of Tehran Science and Technology Park that 100 firms were selected by using a stratified random sampling. The validity of research tools’ content is approved by six elite professors with academic entrepreneurship and the reliability of the variables are calculated by Cranach’s alpha that institutional trust and external factors are 72% and 66% respectively. The research results suggested that there is meaningful relationship between external factors and academic entrepreneurship and also there is not meaningful relationship between institutional trust and academic entrepreneurship.