The identical cash flow rights of Chinese A and B shares provide a natural experiment that allows us to explore how investor clienteles affect stock return patterns. Chinese domestic retail investors are responsible for the majority of trades in A shares, while foreign institutional investors...

We link equity and treasury bond markets via an informational channel. When macroeconomic state shifts are more probable, informed traders are more likely to have valid signals about fundamentals, so that uninformed traders are less willing to trade against informed ones. This implies low volume...

Movements in expected returns (ER) can cause a bias in measured autocorrelations, and the resulting spurious component is positive for infrequent regime shifts. We demonstrate this point analytically and investigate its empirical prevalence. In a key contribution, we use shifts in ex ante ER...

Changing expected returns can induce spurious autocorrelation in returns. We show why this happens with simple examples and investigate its prevalence in actual equity data. In a key contribution, we use shifts in ex ante expected return estimates from options prices, factor models, and...

The distance between short- and long-run moving averages of prices (MAD) predicts future equity returns in the cross-section. Annualized value-weighted alphas from the accompanying hedge portfolios are around 9%, and the predictability goes beyond momentum, 52-week highs, profitability, and...

Regression regularization techniques show that deviations of accounting fundamentals from their preceding moving averages forecast drifts in equity market prices. The deviations-based predictability survives a comprehensive set of prominent anomalies. The profitability applies strongly to the...

We consider a setting where investors receive private signals about cash flows as well as their betas. We obtain a closed-form solution for the case where informed agents are risk neutral and the market maker is risk averse. Market liquidity is non-linear and non-monotonic (under reasonable...

Illiquidity measures appear to be related to monthly realized returns but do they impact long-run costs of capital (CoC) for firms? Using U.S. data, we find cross-sectional evidence that, controlling for market capitalization, the Amihud (2002) measure of illiquidity is negatively related to CoC...

Presentation Slides for "Overconfidence, Arbitrage, and Equilibrium Asset Pricing" This paper offers a model in which asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against mispricing. In equilibrium, expected returns are...

This paper sheds empirical light on whether sentiment affects the profitability of price momentum strategies. We hypothesize that news that contradicts investors' sentiment causes cognitive dissonance, which slows the diffusion of signals that oppose the direction of sentiment. This phenomenon...