ABSTRACT In an effort to better understand the dynamic market price adjustment process, this paper develops a model which describes the impact of new information on a financial market. The primary emphasis is on the price change‐volume relationship in the presence of a margin requirement. We find that the margin requirement significantly affects the relation of price change to volume. Furthermore, this relationship is shown to be affected by the number of investors in the market, the degree of information dissemination, differences in interpretation of information and the implicit cost of the margin requirement.

ABSTRACT This article evaluates the tax‐loss‐selling hypothesis against the window‐dressing hypothesis as explanations for turn‐of‐the‐year anomalies. We examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former. Controlling for capitalization, we find that in early January (late December), stocks with greater individual investor interest outperform (underperform) stocks with greater institutional investor interest. These results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value. The results are most consistent with the tax‐loss‐selling hypothesis as an explanation for the turn‐of‐the‐year effect.

This study evaluates the tax-loss-selling hypothesis against the window-dressing hypothesis as explanations for the turn-of-the-year return anomalies. We examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former. Controlling for capitalization, we find that in early January, stocks with greater individual investor interest outperform stocks with greater institutional investor interest. These results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value. The results are most consistent with the tax-loss-selling hypothesis as an explanation for the turn-of-the-year effect.

Although institutional investors have a preference for large capitalization stocks, over time they have shifted their preferences toward smaller, riskier securities. These changes in aggregate preferences have arisen primarily from changes in the preferences of each class of institution, rather than changes in the importance of different classes. Evidence also suggests that recent growth in institutional investment combined with this shift in preferences helps explain why markets in general, and smaller stocks in particular, have exhibited greater firm-specific risk and liquidity in recent years. Additional analyses suggest that institutional investors moved toward smaller securities because such securities offer “greener pastures.”

ABSTRACT We find that long‐term institutional investors tilt their portfolios toward firms with better Environmental, Social, and Governance (ESG) profiles, in the cross sections of both institutional investor portfolios and the ownership of firms. We test whether several theoretically motivated mechanisms can explain this relationship. Our results that long‐term investors exhibit patience with firms around poor earnings announcements, but quickly sell portfolio firms after negative ES incidents, support the view that long‐ and short‐term investors evaluate information differently. Our evidence shows that limits‐to‐arbitrage play a role, as we find that investors' ESG tilt weakens following regulatory shocks that shorten their horizon.

According to our survey about climate risk perceptions, institutional investors believe climate risks have financial implications for their portfolio firms and that these risks, particularly regulatory risks, already have begun to materialize. Many of the investors, especially the long-term, larger, and ESG-oriented ones, consider risk management and engagement, rather than divestment, to be the better approach for addressing climate risks. Although surveyed investors believe that some equity valuations do not fully reflect climate risks, their perceived overvaluations are not large.

We document that backfilling in the ExecuComp database introduces a data-conditioning bias that can affect inferences and make replicating previous work difficult. Although backfilling can be advantageous due to greater data coverage, if not addressed, the oversampling of firms with strong managerial incentives and higher subsequent returns leads to a significant upward bias in abnormal compensation, pay-for-performance sensitivity, and the magnitudes of several previously established relations. The bias also can lead to one misinterpreting the appropriate functional form of a relation and whether the data support one compensation theory over another. We offer methods to address this issue. Received May 12, 2014; editorial decision May 10, 2016 by Editor David Hirshleifer.

We hypothesize that the well-documented negativity bias, the psychological tendency to asymmetrically emphasize negative over positive aspects, can help explain several financial market phenomena: why most individuals hold strongly bearish views of both short- and long-term equity return distributions, why individuals exhibit heterogeneous beliefs, and the stock market participation puzzle. Using variation in the perceived risk of mortality from the swine flu pandemic as our primary proxy for an individual's negativity bias, we find strong support for our hypothesis even when controlling for alternative mechanisms including optimism, risk aversion, ambiguity aversion, and anxiety.

We investigate whether institutional investors “vote with their feet” when dissatisfied with a firm's management by examining changes in equity ownership around forced CEO turnover. We find that aggregate institutional ownership and the number of institutional investors decline in the year prior to forced CEO turnover. However, selling by institutions is far from universal. Overall, there is an increase in shareholdings of individual investors and a decrease in holdings of institutional investors who are more concerned with holding prudent securities, are better informed, or are engaged in momentum trading. Measures of institutional ownership changes are negatively related to the likelihoods of forced CEO turnover and that an executive from outside the firm is appointed CEO.