The Journal of Finance

Worrying about the Stock Market: Evidence from Hospital Admissions

Published: 02/03/2016   |   DOI: 10.1111/jofi.12386

JOSEPH ENGELBERG, CHRISTOPHER A. PARSONS

Using individual patient records for every hospital in California from 1983 to 2011, we find a strong inverse link between daily stock returns and hospital admissions, particularly for psychological conditions such as anxiety, panic disorder, and major depression. The effect is nearly instantaneous (within the same day) for psychological conditions, suggesting that anticipation over future consumption directly influences instantaneous utility.

In Search of Attention

Published: 09/21/2011   |   DOI: 10.1111/j.1540-6261.2011.01679.x

ZHI DA, JOSEPH ENGELBERG, PENGJIE GAO

We propose a new and direct measure of investor attention using search frequency in Google (Search Volume Index (SVI)). In a sample of Russell 3000 stocks from 2004 to 2008, we find that SVI (1) is correlated with but different from existing proxies of investor attention; (2) captures investor attention in a more timely fashion and (3) likely measures the attention of retail investors. An increase in SVI predicts higher stock prices in the next 2 weeks and an eventual price reversal within the year. It also contributes to the large first‐day return and long‐run underperformance of IPO stocks.

The Causal Impact of Media in Financial Markets

Published: 01/06/2011   |   DOI: 10.1111/j.1540-6261.2010.01626.x

JOSEPH E. ENGELBERG, CHRISTOPHER A. PARSONS

Disentangling the causal impact of media reporting from the impact of the events being reported is challenging. We solve this problem by comparing the behaviors of investors with access to different media coverage of the same information event. We use zip codes to identify 19 mutually exclusive trading regions corresponding with large U.S. cities. For all earnings announcements of S&P 500 Index firms, we find that local media coverage strongly predicts local trading, after controlling for earnings, investor, and newspaper characteristics. Moreover, local trading is strongly related to the timing of local reporting, a particular challenge to nonmedia explanations.

Anomalies and News

Published: 08/09/2018   |   DOI: 10.1111/jofi.12718

JOSEPH ENGELBERG, R. DAVID MCLEAN, JEFFREY PONTIFF

Using a sample of 97 stock return anomalies, we find that anomaly returns are 50% higher on corporate news days and six times higher on earnings announcement days. These results could be explained by dynamic risk, mispricing due to biased expectations, or data mining. We develop and conduct several unique tests to differentiate between these three explanations. Our results are most consistent with the idea that anomaly returns are driven by biased expectations, which are at least partly corrected upon news arrival.

Short‐Selling Risk

Published: 12/15/2017   |   DOI: 10.1111/jofi.12601

JOSEPH E. ENGELBERG, ADAM V. REED, MATTHEW C. RINGGENBERG

Short sellers face unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that short‐selling risk affects prices among the cross‐section of stocks. Stocks with more short‐selling risk have lower returns, less price efficiency, and less short selling.

Anchoring on Credit Spreads

Published: 02/04/2015   |   DOI: 10.1111/jofi.12248

CASEY DOUGAL, JOSEPH ENGELBERG, CHRISTOPHER A. PARSONS, EDWARD D. VAN WESEP

This paper documents that the path of credit spreads since a firm's last loan influences the level at which it can currently borrow. If spreads have moved in the firm's favor (i.e., declined), it is charged a higher interest rate than is justified by current fundamentals, whereas if spreads have moved to the firm's detriment, it is charged a lower rate. We evaluate several possible explanations for this finding, and conclude that anchoring to past deal terms is most plausible.