Pages: 537-539 | Published: 3/2019 | DOI: 10.1111/jofi.12629 | Cited by: 0
Pages: 541-541 | Published: 3/2019 | DOI: 10.1111/jofi.12767 | Cited by: 0
Pages: 639-674 | Published: 10/2018 | DOI: 10.1111/jofi.12734 | Cited by: 0
JEAN-PHILIPPE BOUCHAUD, PHILIPP KRÜGER, AUGUSTIN LANDIER, DAVID THESMAR
We propose a theory of the “profitability” anomaly. In our model, investors forecast future profits using a signal and sticky belief dynamics. In this model, past profits forecast future returns (the profitability anomaly). Using analyst forecast data, we measure expectation stickiness at the firm level and find strong support for three additional model predictions: (1) analysts are on average too pessimistic regarding the future profits of high‐profit firms, (2) the profitability anomaly is stronger for stocks that are followed by stickier analysts, and (3) the profitability anomaly is stronger for stocks with more persistent profits.
Pages: 755-793 | Published: 1/2019 | DOI: 10.1111/jofi.12745 | Cited by: 0
JUSTIN MURFIN, RYAN PRATT
We propose that, by financing their own product sales through captive finance subsidiaries, durable goods manufacturers commit to higher resale values for their products in future periods. Using data on captive financing by the manufacturers of heavy equipment, we find that captive‐backed models have lower price depreciation. The evidence is consistent with captive finance helping manufacturers commit to ex‐post actions that support used machine prices. This, in turn, conveys higher pledgeability for captive‐backed products, even for individual machines financed by banks. Although motivated as a rent‐seeking device, captive financing generates positive spillovers by relaxing credit constraints.
Pages: 845-898 | Published: 1/2019 | DOI: 10.1111/jofi.12748 | Cited by: 0
ASSAF EISDORFER, AMIT GOYAL, ALEXEI ZHDANOV
We study whether default options are mispriced in equity values by employing a structural equity valuation model that explicitly takes into account the value of the option to default (or abandon the firm) and uses firm‐specific inputs. We implement our model on the entire cross section of stocks and identify both over‐ and underpriced equities. An investment strategy that buys undervalued stocks and shorts overvalued stocks generates an annual four‐factor alpha of about 11% for U.S. stocks. The model's performance is stronger for stocks with a higher value of the default option, such as distressed or highly volatile stocks.
Pages: 943-983 | Published: 1/2019 | DOI: 10.1111/jofi.12746 | Cited by: 0
CHIN-HAN CHIANG, WEI DAI, JIANQING FAN, HARRISON HONG, JUN TU
Event studies of market efficiency measure earnings surprises using the consensus error (CE), given as actual earnings minus the average professional forecast. If a subset of forecasts can be biased, the ideal but difficult to estimate parameter‐dependent alternative to CE is a nonlinear filter of individual errors that adjusts for bias. We show that CE is a poor parameter‐free approximation of this ideal measure. The fraction of misses on the same side (FOM), which discards the magnitude of misses, offers a far better approximation. FOM performs particularly well against CE in predicting the returns of U.S. stocks, where bias is potentially large.
Pages: 985-1024 | Published: 3/2019 | DOI: 10.1111/jofi.12754 | Cited by: 1
LUKE DeVAULT, RICHARD SIAS, LAURA STARKS
Recent work suggests that sentiment traders shift from safer to more speculative stocks when sentiment increases. Exploiting these cross‐sectional patterns and changes in share ownership, we find that sentiment metrics capture institutional rather than individual investors’ demand shocks. We investigate the underlying economic mechanisms and find that common institutional investment styles (e.g., risk management, momentum trading) explain a significant portion of the relation between institutions and sentiment.
Pages: 1077-1078 | Published: 3/2019 | DOI: 10.1111/jofi.12626 | Cited by: 0
Pages: 1079-1079 | Published: 3/2019 | DOI: 10.1111/jofi.12627 | Cited by: 0
Pages: 1080-1081 | Published: 3/2019 | DOI: 10.1111/jofi.12630 | Cited by: 0