Hong and Kacperczyk (2010) document that decreases in analyst competition due to broker mergers encourage analysts to please managers, leading to greater consensus optimism bias. We propose two addition effects of analyst competition. The hardworking hypothesis suggests that lower competition...

We study compound returns to nearly 62,000 global common stocks during the 1990 to 2018 period, documenting that the majority, 56% of US stocks and 61% of non-US stocks, under perform one-month US Treasury bills over the full sample. Focusing on aggregate shareholder wealth creation measured in...

Models of political risk predict that increases in political uncertainty cause stock prices to fall, especially for politically sensitive firms. We use the event of the Bo Xilai political scandal in 2012 in China as an exogenous shock to identify the impact of political uncertainty on asset...

We find that the positive (negative) response of corporate investment to high (low) stock valuation is stronger when top-performing institutional investors in the firm’s industry increase (decrease) their ownership in the firm. The effects are more pronounced for firms with stronger managerial...

The literature has provided mixed evidence on the relationship between cash holdings and average stock returns. We empirically verify that the relationship is positive and robust to the adjustment of risk, the construction of cash holdings portfolios, and the weighting scheme of portfolio...

This study comprehensively reexamines the debate over behavioral and rational explanations for the investment effect in an updated sample. We closely follow the previous literature and provide several differences. All our tests include five prominent measures of corporate investment and...

Widely used databases report stock returns that are measured at the monthly horizon, while investors participate in the markets over multiple months. Most academic studies report conditional or unconditional arithmetic means of the monthly returns. We describe the odd trading strategy...

This study evaluates the importance of confirmatory bias and the representativeness in interpreting corporate earnings news. We find that: (i) confirmatory bias and the representativeness heuristic affect how analysts interpret earnings announcements; and (ii) confirmatory bias has greater...