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A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets

Hong, Harrison - 1997

We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was...

Persistent link: https://www.econbiz.de/10012472491

Location Choice, Portfolio Choice

Branikas, Ioannis - 2017

Households hold nondiversified stock portfolios of firms headquartered near their city of residence. Explanations assign a causal role for proximity, either in generating an informational advantage or a familiarity bias. Empirical analyses assume households locate randomly, even though they...

Persistent link: https://www.econbiz.de/10012455640

Yesterday's Heroes : Compensation and Creative Risk-Taking

Cheng, Ing-Haw - 2010

We study the relationship between compensation and risk-taking among finance firms using a neglected insight from … principal-agent contracting with hidden action and risk-averse agents. If the sensitivity of pay to stock price or slope does … not vary with stock price volatility, then total compensation has to increase with firm risk to satisfy as agent …

Persistent link: https://www.econbiz.de/10012462481

Do Hedge Funds Profit From Mutual-Fund Distress?

Chen, Joseph - 2008

This paper explores the question of whether hedge funds engage in front-running strategies that exploit the predictable trades of others. One potential opportunity for front-running arises when distressed mutual funds -- those suffering large outflows of assets under management -- are forced to...

Persistent link: https://www.econbiz.de/10012464861

The Neighbor's Portfolio : Word-of-Mouth Effects in the Holdings and Trade of Money Managers

Hong, Harrison - 2003

A mutual-fund manager is more likely to hold (or buy, or sell) a particular stock in any quarter if other managers in the same city are holding (or buying, or selling) that same stock. This pattern shows up even when controlling for the distance between the fund manager and the stock in...

Persistent link: https://www.econbiz.de/10012468987

Breadth of Ownership and Stock Returns

Chen, Joseph - 2001

We develop a model of stock prices in which there are both differences of opinion among investors as well as short-sales constraints. The key insight that emerges is that breadth of ownership is a valuation indicator. When breadth is low i.e., when few investors have long positions in the stock...

Persistent link: https://www.econbiz.de/10012470575

Mitigating Disaster Risks to Sustain Growth

Hong, Harrison - 2020

We provide the planner's solution to a model where households learn from exogenous natural disaster arrivals about arrival rates and spend to mitigate future damages. Mitigation cannot be decentralized due to positive externalities from curtailing aggregate risks. First-best can be implemented...

Persistent link: https://www.econbiz.de/10012482023

Climate Risks and Market Efficiency

Hong, Harrison - 2016

We investigate whether stock markets efficiently price risks brought on or exacerbated by climate change. We focus on drought, the most damaging natural disaster for crops and food-company cash flows. We show that prolonged drought in a country, measured by the Palmer Drought Severity Index...

Persistent link: https://www.econbiz.de/10012455790

Forecasting Crashes : Trading Volume, Past Returns and Conditional Skewness in Stock Prices

Chen, Joseph - 2000

This paper is an investigation into the determinants of asymmetries in stock returns. We develop a series of cross-sectional regression specifications which attempt to forecast skewness in the daily returns of individual stocks. Negative skewness is most pronounced in stocks that have...

Persistent link: https://www.econbiz.de/10012471074

Asset Float and Speculative Bubbles

Hong, Harrison - 2005

We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors trade a stock with limited float because of insider lock-ups. They have heterogeneous beliefs due to overconfidence and face short-sales constraints. A bubble arises as price overweighs optimists'...

Persistent link: https://www.econbiz.de/10012467316