We reveal a novel channel through which market participants' sentiment influences how they forecast stock returns: their optimism (pessimism) affects the weights they assign to fundamentals. Our analysis yields four main findings. First, if good (bad) “news” about dividends and interest...

We distill sentiment from a huge assortment of NASDAQ news articles by means of machine learning methods and examine its predictive power in single-stock option markets and equity markets. We provide evidence that single-stock options react to contemporaneous sentiment. Next, examining return...

We propose a practical framework to detect mispricing, test informational efficiency and evaluate the behavioural biases within high-frequency prediction markets, especially in how prices react to news. We show this using betting exchange data for association football, exploiting the moment when...

Predicted stock issuers (PSIs) are firms with expected “high-investment and low-profit” (HILP) profiles that earn unusually low returns. We carefully document important features of PSI firms to provide insights on the economic mechanism behind the HILP phenomenon. Top-PSI firms are...

This study is motivated by the continuing popularity of the Altman Z-score as a measure of distress risk. Altman first introduced the ‘Z' score in 1968 and 50 years later it is still going strong as a means to predicting bankruptcy. During these 50 years, academicians have studied the...

In this paper, I argue that we can use consumer and investor perceptions to forecast short-term fluctuations in asset prices. Using tweets scraped from Twitter between 2009 and 2019, I perform textual analysis to construct daily sentiment indices. While other scholars have relied on third-party...

The trading app Robinhood maintains a list of the 100 stocks most widely held by its users. Using a novel dataset of stock popularity with Robinhood user, I focus on new securities that enter the list. I document the strong effect that salience of new Top 100 listing events has on the attention...

We provide a psychological explanation for the delayed price response to news about economically linked firms. We show that the return predictability of economically linked firms depends on the nearness to the 52-week high stock price. The interaction between news about economically linked firms...

This study presents direct evidence on the question whether investors recognize the widely documented biases in securities analysts' earnings forecasts. The internal rate of return implied by current stock price and consensus earnings forecasts is found to be correlated with indicators of bias...

Retail order imbalance positively correlates with returns in the days following trades. However, in aggregate, retail investor trades lose money over these same periods. Why? 1) While order imbalance tests value or equally weight stocks, retail purchases are concentrated in stocks earning large...