I find that aggregate asset growth constructed from bottom-up data negatively predicts future market returns both in and out-of-sample and this result is robust across G7 countries. I further show that aggregate asset growth contains information about future market returns not captured by traditional macroeconomic variables and other measures of investment or growth. The forecasting ability of asset growth is strongly correlated with its propensity to predict more optimistic analyst forecasts and subsequent downward revisions, earnings surprise, and systematic errors in investors’ expectations. The time-varying risk premium also appears key in explaining the documented return predictability.
The Review of Asset Pricing Studies20166(2), 303-328
Stocks with increases in idiosyncratic risk tend to earn low subsequent returns for a few months. However, high idiosyncratic risk stocks eventually earn persistently high returns. These results are consistent with positively priced idiosyncratic risk and temporary underreaction to idiosyncratic risk innovations. Because risk levels and innovations are correlated, the relation between historical idiosyncratic risk and returns may reflect both risk premiums and underreaction and yield misleading inference regarding the price of risk. The results reconcile previous work offering conflicting evidence on the price of idiosyncratic risk and help to discriminate among explanations for the idiosyncratic risk-return relation.
We study repeated sequential games where players may not move simultaneously in stage games. We introduce the concept of effective minimax for sequential games and establish a Folk theorem for repeated sequential games. The Folk theorem asserts that any feasible payoff vector where every player receives more than his effective minimax value in a sequential stage game can be supported by a subgame perfect equilibrium in the corresponding repeated sequential game when players are sufficiently patient. The results of this paper generalize those of Wen (1994), and of Fudenberg and Maskin (1986). The model of repeated sequential games and the concept of effective minimax provide an alternative view to the Anti-Folk theorem of Lagunoff and Matsui (1997) for asynchronously repeated pure coordination games.
This study examines the impact of managerial foreign experience on corporate innovation using manually collected data of Chinese listed companies. We find that managerial foreign experience is positively associated with corporate innovation. This association is robust to a series of robustness checks, including the use of Heckman two-step sample selection model, propensity score matching procedure, and the market reaction to the appointing announcements of managers with foreign experience. Further analyses indicate that senior managers with foreign experience have a more significant impact on corporate innovation than junior managers with foreign experience; both foreign study experience and foreign work experience have important impacts on corporate innovation; managers with foreign experience in private enterprises have more initiatives to innovate than in state-owned enterprises; and managers who gain foreign experience in the United States tend to be more influential and innovative than those who have foreign experience from other countries or regions. Overall, our results suggest that managerial foreign experience matters for corporate innovation in emerging markets.
This paper presents evidence that autocrats use state-owned firms to prevent unrest via employment provision, a role that helps explain these low-productivity firms' favorable treatment and persistence across settings. I use variation in a regional conflict in Xinjiang to establish that Chinese state firms respond to threats of ethnic unrest by hiring minority men. Concurrently, wages rise and private employment falls among this group. These patterns are consistent with a theoretical framework of governmentsubsidized, pacification-motivated state employment, and I use the framework to quantify the implicit subsidy that state firms receive for hiring male minorities.
Economic intuition indicates that each dollar of current pretax cash flow should lead to higher accounting earnings, higher tax payments, and lower stock price under the FIFO rather than the LIFO method of inventory costing. Hence, the earnings/price ratios of the FIFO firms should be higher than those of the LIFO firms. However, the empirical study in this paper provides evidence to the contrary. To search for confounding factors, I examine the possible impacts of size, risk, industry classification, other accounting methods, and expectations of future earnings growth. None of these factors seems to affect the conclusion significantly. Because I have not established a complete causal link between accounting information and stock valuation, I refrain from drawing strong inferences and treat it as a puzzle. This puzzle should stimulate more research in this area in the future. Résumé. L'intuition économique veut que chaque dollar de flux d'encaisse actualisé avant impôt doive produire des bénéfices comptables supérieurs, des impôts à payer plus élevés, et des prix plus faibles des actions si l'on utilise la méthode d'épuisement successif (PEPS) plutôt que la méthode d'épuisement à rebours (DEPS) dans l'establissement du coût des stocks. Les ratios cours/bénéfices des entreprises qui utilisent la méthode PEPS devraient done être plus élevés que ceux des entreprises qui utilisent la méthode DEPS. Toutefois, l'étude empirique effectuée par l'auteur l'amène à des conclusions contraires. Cherchant des facteurs qui tendraient à renverser la situation, il examine l'incidence possible de la taille, du risque, de la classification du secteur, d'autres méthodes comptables et de perspectives de croissance éventuelle des bénéfices. Aucun de ces facteurs ne semble influer sur sa conclusion de façon significative. L'auteur n'ayant pas établi de lien de causalité définitif entre l'information comptable et l'évaluation des actions, il s'abstient de tirer des conclusions fermes et aborde plutôt la question sous forme de puzzle. Un puzzle qui devrait éventuellement stimuler la recherche dans ce domaine.