Essays on Asset Pricing Anomalies 公开

Wen, Quan (2014)

Permanent URL: https://etd.library.emory.edu/concern/etds/s4655h09t?locale=zh
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Abstract

This dissertation investigates the pervasiveness of two asset pricing anomalies: asset growth and financial distress. In the first essay ("Asset growth and stock market returns: a time-series analysis"), I examine whether the firm-level asset growth effects extend to the aggregate stock market. I find that aggregate asset growth is a robust negative predictor of future stock market returns. The return predictability is short-term but economically large, and holds both in and out-of-sample. I find that high aggregate asset growth is also associated with more optimistic analyst forecasts and subsequent downward revisions, as well as greater earnings disappointments. These results are consistent with investor over-extrapolation hypothesis, but inconsistent with the rational explanation. The time-series framework sheds new light on the source of the anomaly. In the second essay ("A new measure of investor sentiment"), I investigate the implications of aggregate asset growth in a broad set of anomalies in cross-sectional stock returns. I find that asset growth has significant predictive power for the anomaly returns, consistent with asset growth capturing investor sentiment. Most importantly, unlike the commonly used sentiment index, the predictive power of asset growth for cross-sectional stock returns is not driven by economic fundamentals or business-cycle variables. In the third essay ("Financial distress innovations and the distress-return relation", joint work with Mark Rachwalski), we examine the puzzling evidence that financial distress risk is negatively related to subsequent returns. We find that this negative relation lasts only for a year but after that financial distress risk is positively related to returns. We find that the negative relation in the first year is driven by innovations in financial risk during the prior year and not by the level of risk. The evidence indicates that distress risk commands a positive risk premium although investors initially underreact to distress risk innovations. We also find that the positive distress risk premium explains the size effect.

Table of Contents

First Essay: Asset Growth and Stock Market Returns: a Time-Series Analysis

1. Introduction 2

2. Data and Variable Construction 7

3. Empirical Methods 9

4. Regression Results 11

5. Decomposing Asset Growth 15

6. The Source of the Asset Growth Effect 20

7. Conclusions 24

Second Essay: A New Measure of Investor Sentiment

1. Introduction 26

2. Data and Variable Construction 31

3. The Behavior of Aggregate Asset Growth 32

4. Asset Growth, Investor Sentiment, and Stock Market Returns 35

5. Asset Growth, Investor Sentiment, and Analyst Forecasts 37

6. Asset Growth, Investor Sentiment, and Earnings Announcement Returns 39

7. Asset Growth and the Cross-Section of Stock Returns 40

8. Conclusions 44

Third Essay: Financial Distress Innovations and the Distress-Return Relation

1. Introduction 47

2. Financial distress, Risk Innovations, and Underreaction 52

3. Data 57

4. The Cross-Sectional Price of Financial Distress 61

5. Distress Risk and the Size and Value Premiums 68

6. Summary 70

Appendices 73

References 76

Tables 86

Figures 116

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