We provide a new perspective on option and stock price behavior around 52-week highs and lows. We analyze whether option-implied volatilities (IVs) change when stock prices approach or break through their 52-week high or low. We also study the effects of highs and lows on a stock’s beta and return volatility. We find that IVs and stock betas decrease when approaching a high or low, and that volatilities increase after breakthroughs. The effects are economically large and significant. The approach results can be explained by the anchoring theory. The breakthrough results are consistent with anchoring and the investor attention hypothesis.

We study the role of regional cultural differences in M&A transactions in the U.S. A larger social trust distance between two companies reduces the likelihood of them combining via an M&A transaction and results in lower completion rates and longer completion times, indicating higher complexity in deal execution. However, a larger social trust distance is also associated with higher gains from mergers, as measured by acquirer and combined announcement returns and medium-term buy-and-hold abnormal returns. This suggests that for these announced deals, the synergy potential is high enough to offset the costs induced by the large cultural distance.

Our paper examines whether investor opinions expressed in social media predicted stock returns of financial firms during the 2007–2009 global financial crisis. We conduct a textual analysis of the articles published on the stock market insight website Seeking Alpha before the crisis and find that banks that were described in articles with a higher fraction of negative words experienced (1) sharper drops in stock prices, (2) larger increases in expected default probability, and (3) greater surges in nonperforming loans during the crisis. Our evidence suggests that wisdom of crowds provides valuable information on how banks weather a forthcoming crisis.

We find that analysts are more likely to downgrade stocks when prices approach the 52-week high. The results are stronger for stocks with higher information asymmetry but moderated by analysts' reputation, work experience, and educational background. We also find a strategy that shorts stocks with recommendation downgrades is less profitable for the downgrades near 52-week high than for other downgrades. Moreover, these downgraded firms with prices near 52-week high subsequently experience relatively less negative earnings forecast revisions. These results suggest that these downgrade decisions are less likely to be information-driven and consistent with our anchoring interpretation.

We explore the governance effect of short-selling threat on mergers and acquisitions (M&A). We use equity lending supply (LS) to proxy for the threat, as short sellers incentives to scrutinize a firm depend on the availability of borrowing shares. Our results show that acquirers with higher LS have higher announcement returns. The effect is stronger when acquirers are more likely to be targets of subsequent hostile takeovers and when their managers wealth is more linked to stock prices. We conduct four sets of tests to mitigate endogeneity concerns. Finally, the governance effect exists only for deals prone to agency problems.

We find that changes in short interest predict banks’ stock returns during two recent banking crises. Furthermore, before the 2007–2008 crisis, short interest increased more for banks with worse performance during the Long-Term Capital Management crisis of 1998. We also find that changes in short interest predicted banks’ loan quality and default risk during the 2007–2008 crisis. The results are stronger for banks with higher levels of risk-taking. Overall, our findings indicate that short sellers were informed about the persistent risky business models of banks and shorted those banks before the 2007–2008 crisis.

We hypothesize that when managers do not exercise their options, they signal valuable private information. Accordingly, we construct a proxy to capture managers’ private information from their in-the-money vested options unexercised (VOU) and find that high VOU firms’ stocks are underpriced. A long-short portfolio based on VOU generates a 5% alpha annually. Additionally, we find a positive relation with subsequent operating performance. Firms with higher VOU also receive more favorable analyst recommendations and upgraded credit ratings. Firms with higher VOU are more likely to issue news releases, share repurchases, and stock splits to convey that private information to the public.

We hypothesize that when investors pay less attention to financial markets, they rationally allocate relatively more attention to market-level information than to firm-specific information, leading to increases in stock return co-movements. Using large jackpot lotteries as exogenous shocks that attract investors’ attention away from the stock market, we find supportive evidence that stock returns co-move more with the market on large jackpot days. This effect is stronger for stocks preferred by retail investors and is not driven by gambling sentiment. We also find that stock returns are less sensitive to earnings surprises and co-move more with industries on large jackpot days.

We identify an important channel, acquisitions of public targets, via which the governance through trading (GTT) improves firm values. The disciplinary effect of GTT is more pronounced for firms with higher managerial wealth-performance sensitivity and moderate institutional ownership concentration. Firms with higher GTT also have higher subsequent ROA, ROE, Tobin's Q, analysts forecasted EPS growth rate, and lower expected default risk. The effect is stronger after Decimalization. We conduct several exercises to rule out alternative explanations, such as institutional superior information, investor activism, and momentum. Additional tests show that the disciplinary effect of GTT only exists for less financially-constrained firms and non-all-cash M&As where the agency problem is more likely to be prevalent.